No, we do not believe a certificate of exemption fee should be included in the finance charge calculation, provided that the fee is bona fide and reasonable in amount.

In Cook, Kane, Peoria and Will counties, the Residential Real Property Disclosure Act requires an anti-predatory lending database program. In those Illinois counties, a title insurance company or closing agent must attach to every mortgage a certificate of compliance with the program requirements or a certificate of exemption. Without a certificate, a mortgage is unrecordable.

Regulation Z exempts certain real estate-related fees from the finance charge calculation if the fees are bona fide and reasonable in amount. Fees for title examination, abstract of title, title insurance, property surveys, credit reports, and appraisals are examples of exempt real estate-related fees. We believe the certificate of exemption fee is similar to the title-insurance types of exempt fees, and therefore should be excluded from the finance charge calculation — provided it is bona fide and reasonable in amount. Similarly, the additional fees for recording the certificate of exemption (if any) would be exempt from the finance charge calculation, provided that the fees are itemized and disclosed.

For resources related to our guidance, please see:

• Residential Real Property Disclosure Act, 765 ILCS 77/70(g) (“The title insurance company or closing agent shall attach to the mortgage a certificate of compliance with the requirements of this Article, as generated by the database. If the transaction is exempt, the title insurance company or closing agent shall attach to the mortgage a certificate of exemption, as generated by the database. . . . If the title insurance company or closing agent fails to attach the certificate of compliance or exemption, whichever is required, then the mortgage is not recordable.”)

• Regulation Z, 12 CFR 1026.4(a) (“The finance charge is the cost of consumer credit as a dollar amount. It includes any charge payable directly or indirectly by the consumer and imposed directly or indirectly by the creditor as an incident to or a condition of the extension of credit. It does not include any charge of a type payable in a comparable cash transaction.”)

• Regulation Z, 12 CFR 1026.4(c)(7)  (“The following charges are not finance charges: . . . (7) The following fees in a transaction secured by real property or in a residential mortgage transaction, if the fees are bona fide and reasonable in amount:

(i) Fees for title examination, abstract of title, title insurance, property survey, and similar purposes.

(ii) Fees for preparing loan-related documents, such as deeds, mortgages, and reconveyance or settlement documents.

(iii) Notary and credit-report fees.

(iv) Property appraisal fees or fees for inspections to assess the value or condition of the property if the service is performed prior to closing, including fees related to pest-infestation or flood-hazard determinations.

(v) Amounts required to be paid into escrow or trustee accounts if the amounts would not otherwise be included in the finance charge.”)

• Regulation Z, 12 CFR 1026.4(e) (“If itemized and disclosed, the following charges may be excluded from the finance charge: (1) Taxes and fees prescribed by law that actually are or will be paid to public officials for determining the existence of or for perfecting, releasing, or satisfying a security interest.”)

• Regulation Z, Official Interpretations, Paragraph 4(e), Comment 1(i) (“Excludable charges. Sums must be actually paid to public officials to be excluded from the finance charge under § 1026.4(e)(1) and (e)(3). Examples are charges or other fees required for filing or recording security agreements, mortgages, continuation statements, termination statements, and similar documents, as well as intangible property or other taxes even when the charges or fees are imposed by the state solely on the creditor and charged to the consumer (if the tax must be paid to record a security agreement).”)