Lesson 17 of 20 · 7 min

What a lender must disclose, and what it need not

Disclosure obligations cover the terms and the charges, and generally not the lender's own risk view of you.

The gap between what is disclosed and what is decision-relevant is the structural theme of this whole track, and it is worth stating carefully, because the disclosure regime is neither absent nor comprehensive.

Generally provided, in the agreement or on statements:

The terms of the facility, including the demand nature, the rate formula, and the existence of a maintenance threshold.
The rate in force, and periodic statements of the balance and charges.
Advance rate schedules, often at origination and often as a schedule that may be revised.
Notice of certain changes, where the agreement or applicable rules require it.
General risk disclosures about pledging securities, from regulators and from the provider.

Generally not provided:

Your current collateral lending value as a computed figure — the subject of the next lesson.
Your current loan-to-value on the basis the threshold uses, and your headroom.
The lender's internal buffer, if it acts before the stated threshold.
The rate path within a statement period, or the reason a rate changed.
Advance rate revisions as a dated event with an explanation.
Any forward-looking view of your position.

Note the pattern. What is disclosed is the terms and the history. What is not disclosed is the state — where you currently stand relative to the trigger. The lender computes that continuously because it needs it. Nothing generally obliges it to hand the figure to you.

This is not a claim that the regime is inadequate, which is a policy question this curriculum does not take a view on. It is a description of a boundary, and the reason the reconstruction exercise in Track 1 lesson 20 exists: the state has to be computed by you because it is not delivered to you.

Key terms

Terms disclosure: What the agreement is required to state: the mechanisms, the formulas, and the rights of each party.
State disclosure: Where you currently stand against the threshold. Computed continuously by the lender and generally not supplied.
Internal buffer: A lender's practice of acting before the stated threshold. Not typically disclosed, and it moves the effective trigger.

Worked example

Six questions and where the answers come from

A borrower trying to establish their position from available documents.

What is my rate?: Statement
What is the threshold?: Agreement
What are my advance rates?: Schedule
What is my collateral lending value today?: Compute it yourself
What is my headroom today?: Compute it yourself
Will the lender act before the threshold?: Generally undisclosed

Three of six answers are supplied. The three that determine whether a call arrives are the ones you have to produce.

Check yourself

Your agreement and statements give you the rate, the threshold and the advance rate schedule. What are they unlikely to give you?

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Educational only. Nothing in this lesson is investment, legal or tax advice, or a recommendation to enter into any transaction. Figures are illustrative and computed from the inputs stated in the lesson.