[kmeade]

Can banks add an annual unused commitment fee to a HELOC (consumer purpose – primary residence) if related language is in the credit agreement?

For example, for $700,000 HELOC, the borrower keeps a balance of $200,000, can the bank charge a percentage of the unused balance ($500,000)?

If yes, are there any recommendations related to this type of situation?

[jholzknecht]

There are several issues to consider.

For purposes of Truth in Lending such a fee would need to be disclosed. Including the fee in an account agreement/disclosure at consummation would be relatively straight forward. Adding the fee to an existing HELOC is more complicated. Most likely the fee could only be added with the customer’s consent.

State usury laws must also be considered. With the most favored lender status used in Kentucky there is a number of statutes under which a HELOC can be made. I am not aware of any Kentucky statute that describes a fee such as the one you describe. You would likely need a legal opinion to help you work around the usury issue.

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