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Home CFPB Seeks to Limit Banks' Ability to Collect on Delinquent HELOCs

CFPB Seeks to Limit Banks' Ability to Collect on Delinquent HELOCs

Authored By: Lewis Wood on 12/5/2022

Source: American Banker

The Consumer Financial Protection Bureau is taking the position that financial institutions cannot secure repayment on certain home equity lines of credit by pulling funds from their delinquent customers' checking accounts.

The bureau's argument in a court case filed by a customer of PNC Financial Services Group has implications for how FIs structure HELOCs, which are coming back into favor as interest rates rise.

At issue is how HELOCs should be treated legally, given that they are open-ended credit lines, similar to a credit card, but are exempt from some card-related rules.

The CFPB's argument comes as HELOCs are once again gaining traction in the mortgage market. Until earlier this year, ultralow interest rates had prompted a refinancing boom, with many borrowers using the proceeds to pay for home renovations. Now that rates have risen sharply, homeowners are increasingly turning to HELOCs and home equity loans, rather than refinancing their entire mortgage, to borrow what they need.

The CFPB has also sought to place some limits on lenders' ability to pull loan payments from consumers' deposit accounts through its payday lending rule. The rule, which remains in legal limbo, would prohibit payday lenders from making more than two failed attempts at getting money from customers' checking accounts.

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