Do What You Say and Say What You Mean

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TILA requires a lender to provide an applicant with a good faith estimate of the fees that will be charged to, or imposed on, the applicant in connection with their loan. Seems simple, if you’re gonna charge it; disclose it.

There’s a little catch, the fee must be for a service that is actually provided by the lender.

For example:

• Processing or underwriting fee
• Goods or service required
  • Appraisal
  • credit report (Reflect the actual charge – no markups)
• Certain title/closing services which a consumer may shop.

Seems straightforward. So, why do lenders still have problems?

Take Peoples Bank in Kansas, they’re required to pay $2.8 million to borrowers to whom they charged a bogus discount fee. Consumers paid them a discount fee expecting to get a discounted (lower) rate.  The Fed concluded that they didn’t receive a discount.

A key missing element, besides a reduced rate, was a written policy covering the use of discounts to reduce an applicant’s rate.

Although the bank provided all sorts of disclosures and clearly listed the fee on the LE and CD, the disclosures were “misleading,” according to the Fed.

It’s not enough to disclose all the fees and charges, they must be accurate and cover the costs/expense for which they are intended.

If you’re going to charge a ‘discount fee’ you need to also disclose a method by which the fee gets discounted and the consumer better get some benefit from paying the fee.

This holds true for all fees disclosed and charged. Although the fee for the services for which a consumer may shop allow for a 10% tolerance, that tolerance is based on the fees that are disclosed on the initial LE (as justifiably adjusted) and charged at the closing.

A fee that is not disclosed at application may be charged at closing. But, a fee disclosed but not charged must be deducted from the base total used to determine the tolerance limit. That could require a cure.

When disclosing fees, be sure that:

1. The fee is for a required service
2. The service or product is actually provided
3. The consumer realizes some benefit from the product or service
4. It is a reasonable, good faith estimate
5. A third-party fee is not marked up in any way
6. The reason for the charge is clearly explained to the consumer
7. You have documented policies and procedures covering the charging and disclosure of all fees.

Otherwise, one thing may lead to another…

Editor’s Note: “One Thing Leads to Another” is an old song from back in 1983 by the Fixx, but it still holds true today.

About the Author

Michael Vitali

Michael L. Vitali – Independent Consultant to the Mortgage Industry Mike Vitali is an independent consultant to the mortgage industry on matters concerning compliance and mortgage lending. He most recently served as the Senior Vice President and Chief Compliance Officer for LoanLogics, monitoring regulatory developments and their practical implications for the mortgage lending industry. His duties included research, interpretation, and analysis of existing and proposed legislation related to the industry in support of recommendations for policy and/or procedure changes to maintain continued quality and compliance with all applicable laws, rules and regulations, investor requirements, and standard mortgage practices. In his more than 40 years in the mortgage industry, in senior level management, he has gained experience in all areas of mortgage lending, risk management, and compliance. Mike is a past President of the MBA of Greater Philadelphia, is a charter member and was the second Chairman of the MBA of Pennsylvania, and a past board member and Legislative Chair of both associations. He is a recipient of the 1998 Mortgage Banker of the Year Award from the MBA of Greater Philadelphia, and the 2003 Chairman's Award from the MBA of PA, and currently serves on several compliance related task forces for MBA.