We extend loans in Missouri and Illinois, and we charge a document preparation fee. We believe that Missouri law requires us to refer to this fee as an “origination fee.” For consistency, can we call this fee an “origination fee” in Illinois?

Any fees you charge must be disclosed clearly and conspicuously and agreed to by your customers. We believe that switching to an “origination fee” label has some potential to confuse customers, unless your disclosures otherwise make it clear that the fee is being charged for the service of preparing loan documents. As explained below, we recommend caution in switching to the “origination fee” label for this fee.

We are not aware of any express limitations on using the label “origination fee” under Illinois law. The Illinois Banking Act generally provides that state banks may “elect to contract for and receive interest, fees, and other charges for extensions of credit” subject only to section 4(1) of the Interest Act and any laws applicable to “credit secured by residential real estate.” Subsection 4(1) of the Interest Act permits banks to collect interest and charges at any rate agreed upon by a bank and its borrower and, with respect to a mortgage loan, specifies that it is lawful to charge, contract for, and receive any rate or amount of interest or compensation (except as otherwise provided in the Predatory Loan Prevention Act) for loans secured by a mortgage on real estate.

Similarly, Regulation Z does not expressly limit the use of the label “origination fee.” Regulation Z references document preparation fees in excluding “[f]ees for preparing loan-related documents, such as deeds, mortgages, and reconveyance or settlement documents,” from the finance charge if the loan is secured by real property and the fees are bona fide and reasonable in amount. Additionally, the TRID rules in Regulation Z require disclosure on the Loan Estimate and Closing Disclosure of “origination charges,” defined as “charges paid by the consumer to each creditor and loan originator for originating and extending the credit, regardless of how such fees are denominated.” No matter what label you use, Regulation Z requires you to clearly and conspicuously describe these fees and the services they cover.

Consequently, we believe that you may charge either an “origination fee” or “document preparation fee” in Illinois, provided the fee is clearly disclosed and agreed to by the borrower. However, we recommend caution in making this change to the name of the fee — if the fee is going to be charged for document preparation services, that should be crystal clear in your disclosures if using the label “origination fee.”

We note that earlier this year, the CFPB requested comments from consumers on “junk fees.” While document preparation fees are not referenced in the request for comments itself, the CFPB did state in a related blog post that “fees associated with closing on a home, such as document preparation or title insurance, can act as a significant barrier to families trying to buy a home or refinance and can significantly cut into household equity.” While the CFPB has not yet taken action on document preparation fees or other charges they view as “junk fees,” we recommend disclosing these fees particularly carefully because they may be subject to heightened regulatory scrutiny in the future.

Also, we note that we are unfamiliar with Missouri law and cannot provide any guidance on the use of the label “origination fee” in Missouri.

For resources related to our guidance, please see:

Illinois Banking Act, 205 ILCS 5/5e(a) (“Notwithstanding the provisions of any other law in connection with extensions of credit, a State bank may elect to contract for and receive interest, fees, and other charges for extensions of credit subject only to the provisions of subsection (1) of Section 4 of the Interest Act, except for extensions of credit secured by residential real estate, which shall be subject to the laws applicable thereto.”)

Interest Act, 815 ILCS 205/4(1) (“It is lawful for a state bank or a branch of an out-of-state bank, as those terms are defined in Section 2 of the Illinois Banking Act, to receive or to contract to receive and collect interest and charges at any rate or rates agreed upon by the bank or branch and the borrower. . . . It is lawful to charge, contract for, and receive any rate or amount of interest or compensation, except as otherwise provided in the Predatory Loan Prevention Act, with respect to the following transactions: . . . (l) Loans secured by a mortgage on real estate.”)

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

Regulation Z, 12 CFR 1026.37(f)(1) (“Under the subheading ‘Origination Charges,’ an itemization of each amount, and a subtotal of all such amounts, that the consumer will pay to each creditor and loan originator for originating and extending the credit.”)

Regulation Z, Official Interpretations, Paragraph 37(f)(1), Comment 1 (“Charges included under the subheading ‘Origination Charges’ pursuant to § 1026.37(f)(1) are those charges paid by the consumer to each creditor and loan originator for originating and extending the credit, regardless of how such fees are denominated.”)

Regulation Z, Official Interpretations, Paragraph 37(f)(1), Comment 3 (“Other than for points charged in connection with the transaction to reduce the interest rate, for which specific language must be used, the creditor may use a general label that uses terminology that, under § 1026.37(f)(5), is consistent with § 1026.17(a)(1), clearly and conspicuously describes the service that is disclosed as an origination charge pursuant to § 1026.37(f)(1). Items that are listed under the subheading ‘Origination Charges’ may include, for example, application fee, origination fee, underwriting fee, processing fee, verification fee, and rate-lock fee.”)

CFPB blog post, The hidden cost of junk fees (February 2, 2022) (“However, fees associated with closing on a home, such as document preparation or title insurance, can act as a significant barrier to families trying to buy a home or refinance and can significantly cut into household equity.”)