Topic: Finance Charge
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Is there a maximum finance charge applicable to national banks for consumer loans that are not secured by a primary residence and are not for military members?
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No, we do not believe that the National Bank Act imposes a maximum finance charge for consumer loans that are not secured by a primary residence and are not for military members. The National Bank Act allows national banks to charge interest and other charges on loans “at the rate allowed by the laws of…
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For closed-end mortgage transactions, we use a company to verify a borrower’s employment using their work phone number. The company charges a fee for this verification service, which we pass on to the borrower. We have been listing this fee in “Section B” of the Loan Estimate (LE) and Closing Disclosure (CD), since the borrower cannot shop for these services. Would this fee be considered a prepaid finance charge or is it just a finance charge?
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First, we agree that an employment verification fee would be considered a finance charge, since it would not be charged in a comparable cash transaction and does not fall into any of the categories that are exempted from the definition of finance charge. Whether it is a prepaid finance charge depends on how it is…
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We have home equity lines of credit (HELOCs) maturing this year, and we are allowing the borrowers to renew for another draw period. We will charge modification fees that include charges for a flood determination, a credit report, and document preparation. The borrowers will have the option of paying these fees upfront in cash or by drawing on the HELOC. How should these fees be reflected on the initial periodic statement for each option the borrower may choose? We use the home-secured format for our HELOC periodic statements.
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We believe you are required to disclose these modification fees for the HELOC on the initial periodic statement as charges other than finance charges, whether your customer pays these fees with cash or with funds drawn on the line of credit. Although Regulation Z exempts finance charges that qualify as “start-up fees” from inclusion on…
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Is a final inspection fee included in the APR calculation? Our understanding is that if the final inspection is completed after closing, the fee should be included in the APR calculation. For example, we made a loan to fund an improvement, and we performed a final inspection after the closing to confirm that the value with the improvement was consistent with our “as improved” appraisal.
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Yes, a fee for an inspection that is conducted after the loan closing should be included in the finance charge and annual percentage rate (APR) calculation. Regulation Z excludes from the finance charge calculation “fees for inspections . . . if the service is performed prior to closing” for real estate and residential mortgage transactions.…
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When we renew a HELOC, we charge certain renewal-related loan fees that we classify as finance charges. What is the appropriate way to disclose these renewal-related loan fees on a periodic statement? If we treat the renewal as a new loan and issue a new “first” statement, our software would permit us to include the renewal-related fees as “start up” charges that we could add to the finance charge. However, if we treat the renewal as a continuation of the existing HELOC and issue a regular periodic statement, our software does not permit us to include the renewal-related loan fees as part of the finance charge. Our HELOC renewals typically involve extending the maturity date and adjusting the interest rate. We use Regulation Z’s “home secured” format for our periodic statements.
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We do not have enough information to determine exactly how to classify your “renewal-related” loan fees. However, if you include the fees as part of the finance charge, Regulation Z’s “home-secured” periodic statement rules require the fees to be itemized and identified on a periodic statement, regardless of whether it is the first periodic statement…
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Is the $3.00 fee that Illinois requires title companies to remit to the state for each title policy issued by its agents considered a Finance Charge?
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No, in our view this $3 fee should not be included in the finance charge when it is passed on to the borrower. Regulation Z exempts certain real-estate related fees from the scope of finance charges, including fees for title insurance “and similar purposes.” We believe this fee is excluded from the finance charge because…
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We are planning to charge a convenience fee to customers who make loan payments with a credit card. We found that this type of surcharge is prohibited in Oklahoma. Does Illinois prohibit these charges?
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We are not aware of any Illinois law that prohibits so-called convenience fees that are charged for using a credit card to pay for a transaction, including the use of a credit card to make a loan payment. The Illinois Interest Act generally authorizes banks to charge reasonable loan-related fees, provided they are agreed to…
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Should we include an e-recording fee in the finance charge and APR calculations?
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E-recording fees are excluded from the finance charge and APR calculations, provided that they are itemized and disclosed and are paid directly to the county recorder (not paid to or through a third party). For resources related to our guidance, please see: Regulation Z, 12 CFR 1026.4(e) (“If itemized and disclosed, the following charges may…
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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…
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We are working with a borrower who obtained a grant from a government housing program in addition to a loan from our bank. The housing program requires a grant mortgage, which we will include in our disclosures and record at the same time we record our mortgage. Should the recording fee for the grant mortgage be included as a finance charge?
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No, we believe that this fee should be excluded from the finance charge calculation, provided that it is itemized and disclosed. Regulation Z's finance charge calculation excludes fees “that actually are or will be paid to public officials” for recording a mortgage, among other similar fees. In our view, the fact that you are disclosing…