Pub. 14 2024-2025 Issue 1

When Is a Card a Card?

A card is either a credit card or a debit card. What about a home equity line of credit (HELOC) access card? Is that a credit card or a debit card? Or something in between? If it’s in between, does Regulation E apply? Regulation Z? It is easy to talk yourself in circles, but let’s make sense of it once and for all.

To begin, why is this a conversation worth having in the first place? You may know the answer to this question and think this was a compliance officer’s version of child’s play. A card’s definition as a debit or credit card has worthwhile implications. It dictates what disclosures are necessary. In the vast alphabet soup of regulations, each has its onerous disclosure requirements, and Regulations E and Z (the two that apply in these areas) have plenty of requirements.

Furthermore, it dictates how errors are resolved. Regulation E’s error dispute rules are highly consumer-favorable; not that Regulation Z’s aren’t, but Regulation E has a more formal investigation requirement. These formalities would apply if Regulation E applied to the HELOC’s access card transaction. We could go on and on about what each regulation independently entails, but let’s get back to cards.

Debit and credit cards look similar, but there are fundamental differences. A debit card takes funds out of your bank account, while a credit card is linked to a credit line that you pay back later. A HELOC access card blurs the lines. With a HELOC, you may have an account with funds that seem identical to any other asset account. You have to pay those funds back at a later date. So, what exactly is a HELOC access card? To decipher this mystery, let’s look at the regulation. For the regulatory definition of a credit card, we turn to Regulation Z:

“(i) Credit card means any card, plate, or other single credit device that may be used occasionally to obtain credit.”

This includes HELOC access cards, which may be used to obtain credit from a line of credit. Regulation commentary further supports this point.

“i. Examples of credit cards include … A card that guarantees checks or similar instruments, if the asset account is also tied to an overdraft line or if the instrument directly accesses a line of credit.”

So, an access card is a credit card under Regulation Z. Regulation Z applies. But this still leaves the question of whether Regulation E also applies. Regulation E applies to “access devices.” These are cards, codes or other means of access to a consumer’s account that may be used to initiate electronic funds transfers. A HELOC access card does initiate electronic funds transfers from a consumer’s HELOC account, so they are seemingly an access device. However, “account” is a specific term in the context of Regulation E and a crucial part of the definition of an access device.

“’Account’ means a demand deposit (checking), savings, or other consumer asset account (other than an occasional or incidental credit balance in a credit plan) held directly or indirectly by a financial institution and established primarily for personal, family, or household purposes.”

A HELOC can undoubtedly be for personal, family or household purposes, but a loan account is not an asset account. A checking account is an asset account because you wholly own the funds in the account. They add to your net worth. A loan account is a liability. You will have to pay those funds back later, so the withdrawal of those funds subtracts from your net worth. We could call loans a liability account, but that makes them less marketable.

So, generally, a HELOC is not an account under Regulation E, even if it can make electronic transfers because it’s a loan account and not an asset account. So, this cannot meet the Regulation E definition of a “debit card” or “access device,” and, in turn, Regulation E is not applicable. An access device initiates transfers from an “account,” and a HELOC is not an “account” for Regulation E purposes. Therefore, the bank wouldn’t be required to give Regulation E disclosures with a HELOC access device, but that doesn’t mean it could not be done.

If you’re looking to provide customers with the rights disclosed in Regulation E, you could, but it would be an internal policy decision. It is also worth noting that this is the typical way HELOCs are set up, but there can be other structures that may change the analysis above.

Roger Morris serves Compliance Alliance as an Associate General Counsel. Roger brings a combination of unique experiences to C/A that he uses to provide guidance on a wide variety of regulatory and compliance issues.

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