The issue of whether a home equity line of credit (HELOC) that can be accessed using a credit card is a “credit card plan” subject to the Truth in Lending Act’s setoff prohibition is currently before the U.S. Court of Appeals for the Fourth Circuit.  The American Bankers Association recently filed an amicus brief in the case in support of the appellee bank’s position that the prohibition does not apply to HELOCs. 

TILA prohibits credit card issuers from offsetting a “cardholder’s indebtedness arising in connection with a consumer credit transaction under the relevant credit card plan against funds of the cardholder held on deposit with the card issuer.”  The plaintiff filed a lawsuit against the bank in which he alleged that the bank violated the TILA prohibition by using funds in his deposit accounts with the bank to repay amounts owed to the bank on his HELOC.  The plaintiff had a credit card that he used to access the HELOC.  The district court, which dismissed the plaintiff’s lawsuit, ruled that a HELOC is not a “credit card plan” subject to the offset prohibition. 

The plaintiff subsequently filed an appeal with the Fourth Circuit.  The CFPB filed an amicus brief with the Fourth Circuit “in support of neither party” in which it urges the Fourth Circuit to hold that a HELOC accessible by credit card is a “credit card plan” for purposes of the offset prohibition.  

In its amicus brief in support of the bank, the ABA asks the Fourth Circuit to affirm the district court’s ruling and makes the following key arguments for why the district court’s ruling is correct:

  • The CFPB’s HELOC pamphlet (and HELOC information provided to consumers by banks such as the appellee bank) make clear that HELOCs and credit cards are distinct products that consumers should not confuse.
  • The phrase “credit card plan” in the TILA prohibition is properly interpreted to refer to the terms governing the use of the product colloquially called a  “credit card” in the consumer credit market.  The text and structure of the Fair Credit Billing Act that amended TILA to add the offset provision as well as the legislative history make clear that Congress used the phrase “credit card plan” to refer to the terms governing a credit card product and not to the terms governing any type of consumer credit product that can be accessed with a credit card.
  • Subsequent legislation that amended TILA (i.e. the Home Equity Loan Consumer Protection Act of 1988) to add distinct requirements for HELOCs and its legislative history demonstrate that Congress did not consider HELOCs to be subject to the TILA credit card requirements and believed the unique features of HELOCs merited distinct regulations.  Following the 1988 amendments, TILA includes provisions applicable to three distinct types of open-end credit plans: “Open ended credit plans,” “credit card plans,” and “home equity plans.”  The terms “credit card plan” and “home equity plan” are properly interpreted to refer to distinct credit products: credit cards and HELOCs, respectively.
  • The CFPB’s interpretation of the phrase “credit card plan” to include HELOCs accessible by credit card is not entitled to deference because it departs from the Federal Reserve Board’s longstanding practice of regulating credit cards and HELOCs separately and because it purports to benefit consumers when it may harm consumers.  Construing the phrase “credit card plan” broadly would not benefit consumers because, if the prohibition were to apply to HELOCs, it could increase the risk of foreclosure by not allowing the lender to offset funds in a deposit account as a way of recovering the funds that are owed.