Permissibility Of Charging A Borrower An Annual Maintenance Fee On An Open-End Equity Line Of Credit Where The Fee Would Be Disclosed To The Borrower - Q1 2000

By the Division of Banks

Massachusetts General Laws chapter 140, section 114C states, in part, that a card issuer as defined in section one of chapter 140D, whether located within or without the Commonwealth, may assess an annual fee provided it is disclosed to the cardholder. A card issuer is defined in section one of said chapter 140D as "any person who issues a credit card, or the agent of such person with respect to such card." Section one also defines a credit card as "any card, plate, coupon book, or other credit device existing for the purpose of obtaining money, property, labor, or services on credit"(emphasis added). As the statutory definition of credit card includes the term "other credit device", it raises the issue of whether a check presented to the borrower for a home equity loan could be considered an "other credit device". The Division reviewed the Official Staff Commentary on Regulation Z §226.2 (a)(15) relative to the definition of credit card for guidance on this issue. Section 226.2(a)(15) of the Commentary states, in part, "a credit card must be usable from time to time. Since this involves the possibility of repeated use of a single device, checks and similar instruments that can be used only once to obtain a single credit extension are not credit cards."

It is the position of the Division that the issuance of a check for a home equity loan does not fall within said section 114C. However, Section 114B of said chapter 140, when read in conjunction with relevant analogous case law, does not bar the creditor from charging an annual fee on open-end credit transactions. As a home equity line of credit is a form of open-end credit, it is the position of the Division that Massachusetts' law does not prohibit a creditor from charging such an annual fee provided such fee is properly disclosed under chapter 140D of the General Laws.