If your examiners are questioning whether the fee is bona fide and reasonable, they may conclude that it should not be excluded from the finance charge. In general, Regulation Z exempts from the definition of a finance charge your “fees for preparing loan-related documents, such as deeds, mortgages, and reconveyance or settlement documents,” but only if they are “bona fide and reasonable in amount.”

Regulation Z and the Truth in Lending Act do not define what is a “bona fide and reasonable” fee. However, a federal appellate case has defined “bona fide and reasonable” in the context of document preparation fees, in an opinion relied on by federal courts in Illinois. The court held that a document preparation fee is bona fide and reasonable “if it was for a service actually performed and reasonable in comparison to the prevailing practices of the industry in the relevant market.” In that case, the court looked to document preparation fees charged by other lenders in the area (which was western Michigan) and found that a $250 document preparation fee was bona fide and reasonable.

We suggest that you review and document your rationale for raising the fee. To demonstrate that your fee is bona fide, you should show that you are charging the fee for document preparation services actually performed. To demonstrate that your fee is reasonable, it may be helpful to show examiners other institutions’ fees as comparison points (to the extent that they are publicly available). However, you should not share pricing or proprietary information about your institution with other institutions, and vice-versa, due to antitrust law considerations.

For resources related to our guidance, please see:

• Regulation Z, 12 CFR 1026.4(c)(7)(ii) (“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 . . . (ii) Fees for preparing loan-related documents, such as deeds, mortgages, and reconveyance or settlement documents . . . .”)

• Brannam v. Huntington Mortgage Co., 287 F.3d 601, 606 (6th Cir. 2002) (“The fee should be considered reasonable if it was for a service actually performed and reasonable in comparison to the prevailing practices of the industry in the relevant market.” Also, “the relevant inquiry is not whether Huntington has used the cheapest third-party service available to it anywhere, but whether the fee is reasonable given the prevailing practices in the relevant market.”)

• Guise v. BWM Mortg., LLC, 337 F.3d 795, 800 (7th Cir. 2004) and Murry v. America’s Mortg. Banc, Inc., 2006 WL 1647531, *4 (N.D. Ill. 2006) (Two Illinois federal court cases that apply the rule from the Brannam case above.)