USFN Report: 4th Circuit Affirms HELOCs are Not Subject to RESPA

BY THOMAS HODGE, ESQ.
ROSENBERG & ASSOCIATES, LLC*
USFN MEMBER (DC, MD, VA)

As published in the Winter 2025 USFN Report

Recently the 4th Circuit Court of Appeals examined whether open-end lines of credit such as a home equity line of credit (“HELOC”) fall under the definition of federally related mortgage loans under the Real Estate Settlement Practices Act (“RESPA”) in the case Lyons v. PNC Bank, N.A., 112 F.4th 267.

In this case, the borrower had a HELOC with PNC Bank. After the borrower became overdue on his HELOC loan payment, PNC withdrew the payments from the borrower’s other deposit accounts to offset the outstanding payment on the HELOC account, without the initial knowledge of the borrower. The borrower sent notice to PNC notifying them that they did not have a right to make the unauthorized transfer from his accounts to satisfy the overdue HELOC loan payment, along with a request asking for certain other information.

The borrower then sued PNC, alleging that PNC was in violation of RESPA because PNC withdrew money from the borrower’s deposit accounts to offset an outstanding payment on his HELOC loan. Further, the borrower claimed that PNC had specifically violated RESPA by failing to respond timely and adequately to his correspondence, which he contended was a Qualified Written Request under RESPA.

The Court noted that, on its face, 12 U.S.C §2602(1)(A) would include HELOC type loans in the definition of “federally related mortgage loans.” However, the Court went on to state that Congress authorized the Consumer Financial Protection Bureau (“CFPB”) to prescribe rules and regulations and grant reasonable exemptions for classes of transactions. One of the regulations the CFPB enacted is 12 CFR §1024.31, which defines a mortgage loan as “any federally related mortgage loan, as that term is defined in §1024.2 subject to the exemptions in §1024.5(b), but does not include open-end lines of credit (home equity plans).” Therefore, the CFPB had explicitly excluded HELOC type loans from RESPA.

The Court outlined the process the CFPB used in amending RESPA’s Regulation X and noted that, at the same time that the CFPB amended Regulation X, it also amended TILA’s Regulation Z. The CFPB explained that the protections proposed in those amendments, which included the timely and adequate response provision, were not necessary for open-end lines of credit [i.e., HELOCs] because, the newly amended Regulation Z included similar separate error resolution and information request requirements for openend lines of credit.

The Court ultimately ruled that TILA’s Regulation Z covered open-end lines of credit, like HELOCs, and several Regulation Z provisions substantially overlapped with RESPA’s regulations. Therefore, the Court held that the CFPB had the authority to exempt HELOCs from “federally related mortgage loans,” thus affirming that a HELOC is not subject to the provisions of RESPA.

This 4th Circuit Case supports the argument that HELOCs are not subject to RESPA requirements and are not “federally related” under its provisions. It must be noted that, while other Courts may have differing opinions, the CFPB did participate in this case by submitting an amicus brief, and it is the current opinion of the CFPB that HELOC loans are not covered by RESPA.