IBA Compliance Connection

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On our consumer real estate loans, we charge a “Processing fee” that is actually a fee charged to us by the purchaser of the loan. The purchaser charges us a processing fee, which we pass on to the borrower. In addition to this “processing fee,” we would like to charge a “document preparation fee” to cover our internal costs to prepare the real estate documents associated with the loan. Is there any reason we cannot charge both fees? Would they both be part of the finance charge?

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We are not aware of any prohibition against charging both the “processing fee” and “document preparation fee” that you have described, provided that both fees are accurately disclosed to the borrower.

Regarding the finance charge calculation, under Regulation Z, charges imposed on a creditor by another person for purchasing a consumer's obligation are included in the finance charge if the charge is passed on to the consumer. The “processing fee” you described appears to meet that description and so would be included in the finance charge. However, fees for preparing loan-related documents, such as deeds, mortgages, and reconveyance or settlement documents, are excluded from the finance charge provided they are bona fide and reasonable in amount.

For resources related to our guidance, please see:

  • Regulation Z, 12 CFR 1026.4(b)(6) (“The finance charge includes the following types of charges . . . [c]harges imposed on a creditor by another person for purchasing or accepting a consumer's obligation, if the consumer is required to pay the charges in cash, as an addition to the obligation, or as a deduction from the proceeds of the obligation.”)

  • Regulation Z, 12 CFR 1026.4(c)(7)(ii) (“The following charges are not finance charges . . . [t]he 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 . . . [f]ees for preparing loan-related documents, such as deeds, mortgages, and reconveyance or settlement documents.”)