We assess a “fax/email” fee when sending payoff statements for home equity lines of credit (HELOCs). When disclosing this fee at origination, is it sufficient to state that the fee will be charged, or do we need to provide the amount of the fee in the disclosure? We will ensure that the fee we assess is reasonable given the CFPB’s scrutiny of “junk fees.”

We recommend disclosing the amount of the fax/email fee at origination if it is known. Although Regulation Z does not expressly require creditors to disclose the amount of fees associated with payoff statements, it does require you to explain how the fee amount will be determined.

For HELOCs, Regulation Z requires creditors to disclose an “itemization of any fees imposed by the creditor to open, use, or maintain the plan, stated as a dollar amount or a percentage, and when such fees are payable.” We do not believe a fax/email fee for a payoff statement fits this description.

Regulation Z also requires creditors to disclose at account opening “the circumstances under which a finance charge will be imposed and an explanation of how it will be determined.” We believe that a fax/email fee for sending a payoff statement would be considered a “finance charge” under Regulation Z, since it is imposed “as an incident to or a condition of the extension of credit” and would not be “payable in a comparable cash transaction.”

To meet Regulation Z’s requirement to explain how the fax/email fee will be determined, we think it makes sense to list the fee amount if you are charging a flat fee. Alternatively, if there is a range of potential fees you may charge, we recommend listing the range as part of your explanation of how you will determine the fee amount.

Note that for loans considered to be high-cost mortgages under Regulation Z, fees for payoff statements generally are prohibited, unless the customer requests you provide the statement by fax or courier service. When charging a fee for payoff statements provided by fax or courier, you must disclose that payoff statements otherwise are available for free.

Additionally, as a matter of contract law, and under Illinois law, any fees charged must be agreed to by your customers. The Illinois Banking Act generally provides that a state bank may “contract for and receive interest, fees, and other charges for extensions of credit” according to its “prudent business judgment and safe and sound operating standards,” 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 or rates agreed upon by the bank or branch and the 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.

Further, we note that the CFPB has requested comments from consumers on “junk fees,” described as “hidden back-end fees — which are mandatory or quasi-mandatory fees added at some point in the transaction after a consumer has chosen the product or service based on a front-end price.” We believe it would be prudent to disclose the exact amount or a range of potential charges for your fax/email fee to allay any concerns about “hidden” fees.

For resources related to our guidance, please see:

Regulation Z, 12 CFR 1026.40(d)(7) (“Content of disclosures. The creditor shall provide the following disclosures, as applicable: . . . Fees imposed by creditor. An itemization of any fees imposed by the creditor to open, use, or maintain the plan, stated as a dollar amount or percentage, and when such fees are payable.”)

Regulation Z, 12 CFR 1026.6(a)(1) (“The requirements of this paragraph (a) apply only to home-equity plans subject to the requirements of § 1026.40. A creditor shall disclose the items in this section, to the extent applicable: . . . The circumstances under which a finance charge will be imposed and an explanation of how it will be determined, as follows: . . . (iv) An explanation of how the amount of any finance charge will be determined, including a description of how any finance charge other than the periodic rate will be determined.”)

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 1026.34(a)(9)(i) (“In general, a creditor or servicer . . . may not charge a fee for providing to a consumer, or a person authorized by the consumer to obtain such information, a statement of the amount due to pay off the outstanding balance of a high-cost mortgage.”)

Regulation Z, 12 CFR 1026.34(a)(9)(ii) (“A creditor or servicer may charge a processing fee to cover the cost of providing a payoff statement, as described in paragraph (a)(9)(i) of this section, by fax or courier, provided that such fee may not exceed an amount that is comparable to fees imposed for similar services provided in connection with consumer credit transactions that are secured by the consumer’s principal dwelling and are not high-cost mortgages. A creditor or servicer shall make a payoff statement available to a consumer, or a person authorized by the consumer to obtain such information, by a method other than by fax or courier and without charge pursuant to paragraph (a)(9)(i) of this section.”)

Regulation Z, 12 CFR 1026.34(a)(9)(iii) (“Prior to charging a processing fee for provision of a payoff statement by fax or courier, as permitted pursuant to paragraph (a)(9)(ii) of this section, a creditor or servicer shall disclose to a consumer or a person authorized by the consumer to obtain the consumer’s payoff statement that payoff statements, as described in paragraph (a)(9)(i) of this section, are available by a method other than by fax or courier without charge.”)

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.”)

Illinois Banking Act, 205 ILCS 5/5e(b) (“The establishment of account service charges and the amounts of the charges not otherwise limited or prescribed by law is a business decision to be made by a bank according to prudent business judgment and safe and sound operating standards.”)

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.”)

CFPB, Request for Information Regarding Fees Imposed by Providers of Consumer Financial Products or Services, 87 Fed. Reg. 5801, 5803 (February 2, 2022) (“1. If you are a consumer, please tell us about your experiences with fees associated with your bank, credit union, prepaid or credit card account, credit card, mortgage, loan, or payment transfers, including:

a. Fees for things you believed were covered by the baseline price of a product or service.

b. Unexpected fees for a product or service.

c. Fees that seemed too high for the purported service.

d. Fees where it was unclear why they were charged.

2. What types of fees for financial products or services obscure the true cost of the product or
service by not being built into the upfront price?”)

CFPB, Request for Information Regarding Fees Imposed by Providers of Consumer Financial Products or Services, 87 Fed. Reg. 5801, 5801 (February 2, 2022) (“Both empirical studies and theoretical models suggest that when companies use hidden back-end fees — which are mandatory or quasi-mandatory fees added at some point in the transaction after a consumer has chosen the product or service based on a front-end price — it can lure consumers into making purchasing decisions based on a perceived lower price. In addition, when a company charges for individual activities that are typical attributes of a product or service, it can give the company the power to substantially overcharge for those activities because consumers are not choosing a provider at the time they choose to engage in the activity. Well-known examples of such ‘junk fees’ include resort fees added to hotel bills and service fees added to concert ticket prices.”)