You've probably noticed the hard-sell home equity loan boom. Flashy ads and junk-mail flyers hawk easy-credit lines, tax deductions, low rates and repayment terms custom-tailored to your own needs.
Congress has noticed, too.
The first major consumer-protection legislation designed to control the mushrooming home equity loan industry was introduced on Capitol Hill last week. Sponsored by House Banking Committee member Rep. David E. Price (D-N.C.), the bill would change the rules of the game immediately for most home equity lenders.
In essence, the bill would put equity credit lines under the same federal truth-in-lending guidelines as any other form of home mortgage. It would also ban certain forms of aggressive and misleading advertising pitches for equity loans, such as references to ''free money'' and unlimited tax deductibility.
With an impressive bipartisan list of cosponsors, fall hearings on the docket and a Senate companion bill coming soon, Price's legislation appears to be on the fast track. Here's what it would mean to homeowners and lenders:
For the first time, any lender offering any form of ''open-end consumer credit plan secured by a consumer's dwelling'' -- the most popular form of equity loan in 1987 -- would have to disclose the bottom-line financial facts about the deal at the application stage. The new disclosures would have to be ''conspicuously segregated'' from any other marketing or loan data handed to would-be borrowers, so they couldn't miss anything in the fine print.
The mandatory federal disclosures would include:
The true annual percentage rate (APR) in effect on the credit line, not simply the ''teaser'' rate typically highlighted in bold print.
A description of any changes in the APR or rate structure that could or will be made by the lender, whether through use of an index or other means. Studies by Consumers Union and other groups this spring found that some equity credit lenders skimp on details about how the payments on their open-ended lines might fluctuate under foreseeable conditions. Some loans allow the lender to change the entire deal at will, without explanation or advance notice.
Identification of any fees, charges or ''points'' tucked away anywhere in the credit transaction.
Information on ceilings and floors built into the floating rate on the credit line. Many loans come with no rate ceilings. That means that in an economic replay of the early 1980s, when the prime rate zoomed into the upper teens, borrowers could be stuck with monthly interest debts beyond their means.
A plain-language case example of how the credit line would have performed during the prior 24 months.
A printed warning to the consumer that the equity line is tied into his house and could trigger a foreclosure. Second mortgages forced thousands of homeowners out of their dwellings in the l930s. Price and consumer advocates worry that the equity loan boom now under way has the same potential. Many of today's easy-credit borrowers think of equity lines as personal loans, not as real-estate mortgages.
Special advice to borrowers signing up for popular ''interest-only'' plans. The lender would have to explain that while paying nothing but interest results in lower monthly charges, it has the notable disadvantage of retiring no principal debt. As a result, the total expense over the life of the loan is greater, and there is a danger of payment shock when the entire principal amount comes due.
The Price bill also targets some of the slick advertising that is propelling the boom. It would force lenders to explain more about their revolving credit line plans in their advertisements -- including any minimum or maximum monthly fixed payments the lender could impose, as well as accurate descriptions of rates, finance charges and fees.
Price emphasized in an interview that his equity credit line legislation is designed as a ''preventive measure -- a way to avoid future problems.''
He said he's a fan of the equity loan concept, with its tax-deductible interest and flexible repayment terms. ''I just took one out myself,'' he said, ''like a lot of other members of Congress.''
The moral of the equity line story for bankers? When you push something so hard that congressmen are lining up for it, watch out. You're going to get rules.