Skip to content
BOL Conferences
Thread Options
#1850838 - 09/11/13 12:33 PM help with application fee
pjs Offline
10K Club
pjs
Joined: Aug 2004
Posts: 10,321
oHiO
We charge loan applicants $200.00 for application fee - when the loan closes we credit the applicant on the settlement statement a $200.00 credit toward their closing costs. Does this make the application fee a finance charge?
Thanks

Return to Top
Lending Compliance
#1850846 - 09/11/13 12:56 PM Re: help with application fee pjs
Carolina Blue Offline
Platinum Poster
Carolina Blue
Joined: Jul 2005
Posts: 960
Lost in a regulatory fog
You have to meet two different criteria to exlcude the application fee from the finance charge:
1) it must be used to recover the costs of processing an application AND
2) it must be charged to every applicant.
See the commentary to (1026.4(c) Charges Excluded From the Finance Charge) for more details.

It doesn't sound like you meet both. I guess I understand the rationale to charge denials only, but I would be worried from a fair lending perspective. If there is a large disparity in denial rates then you will have a disparate impact on fees.

Return to Top
#1850847 - 09/11/13 12:57 PM Re: help with application fee pjs
RR Joker Offline
10K Club
RR Joker
Joined: Nov 2002
Posts: 20,654
The Swamp
No, because in essence, you aren't actually charging it. The general exception is as follows:

Charges excluded from the finance charge. The following charges are not finance charges:

(1) Application fees charged to all applicants for credit, whether or not credit is actually extended.

and from the commentary:

2. Costs of doing business. Charges absorbed by the creditor as a cost of doing business are not finance charges, even though the creditor may take such costs into consideration in determining the interest rate to be charged or the cash price of the property or service sold. However, if the creditor separately imposes a charge on the consumer to cover certain costs, the charge is a finance charge if it otherwise meets the definition. For example:
_________________________
My opinion only. Not legal advice.

Say you'll haunt me - Stone Sour

Return to Top
#1850908 - 09/11/13 02:43 PM Re: help with application fee RR Joker
pjs Offline
10K Club
pjs
Joined: Aug 2004
Posts: 10,321
oHiO
Our bank wants to collect money up front after the intent to proceed to get things rolling with the loan that is the reason for the application fee but they also want to give the borrower a credit toward closing fees on the settlement statement- does anyone else do this? Thanks

Return to Top
#1850911 - 09/11/13 02:46 PM Re: help with application fee pjs
RR Joker Offline
10K Club
RR Joker
Joined: Nov 2002
Posts: 20,654
The Swamp
Not as you describe, no. What I'm more accustomed to is collecting a credit report and appraisal fee upfront, butif it closes, it's simply shown POC at closing (plus any balance remaining, if any in the column).


I do remember YEARS ago when true application fees were charged to everyone, but it was kept whether the loan closed or didn't (as described in 1026.4) This was during a period of heavy rate-reduction refi's and fickle customers jumping from lender to lender.
Last edited by RR Joker; 09/11/13 02:47 PM.
_________________________
My opinion only. Not legal advice.

Say you'll haunt me - Stone Sour

Return to Top
#1850953 - 09/11/13 03:18 PM Re: help with application fee RR Joker
pjs Offline
10K Club
pjs
Joined: Aug 2004
Posts: 10,321
oHiO
Thanks RRJoker- I appreciate your time.

Return to Top

Moderator:  Andy_Z