if a list is provided for a service, but the borrower lets the bank choose, and the bank chooses someone NOT on the provider list, is this 10% anyway, even if the provider not on the list was chosen by the bank?

In my understanding, if you gave them the list and they chose someone that isn't on it, then that Service Provider's Fee goes into unlimited tolerance

But if the BORROWER did not shop i.e. the BANK chose - then I would be putting it into the 10% bucket.

even if the provider is not on the list and the bank chooses, its 10%?

1026.19(e)(1)(vi)(A)- A creditor permits a consumer to shop for a settlement service if the creditor permits the consumer to select the provider of that service, subject to reasonable requirements.

In the case where the consumer does not select the provider for that service, I don't see how the case could be made that they were permitted to shop under these rules.

1026.19(e)(3)(ii) which sets the 10% tolerance specifies in (C) that it would only be considered in good faith to exceed the baseline by up to 10% if the consumer was permitted to shop and refers back to the the section above.

Given these two citations, I don't see a case for anything other than there being a 0% tolerance when the bank selects the provider regardless if the consumer was given the option to shop but chose not to. If the bank is choosing, it seems to me that there is no tolerance.

It's in the preamble. If the creditor chooses, it is 0%.

A little confused, a required third party service where the applicant is permitted to shop, a list provided; however, the applicant does not shop because they want to, so the bank chooses the provider for them, that is a 0% tolerance?

yes. If the provider comes off your list, whether by choice or by default, the tolerance remains the same.

I'm just surprised the creditor chose someone not on their list - unless it was out of market.

It is my understanding that only the services under section C go in the provider list. If we have any services under section H-Other, do they have to go in the Service Provider List? For example, we don't require Owner's Title Insurance so it goes in section H. Would we have to list them in the service provider list? We are letting them shop for it, but do we have to provide the list of at least one servicer?

3. Services for which the consumer may, but does not, select a settlement service provider. Good faith is determined pursuant to § 1026.19(e)(3)(ii), instead of § 1026.19(e)(3)(i), if the creditor permits the consumer to shop for a settlement service provider, consistent with § 1026.19(e)(1)(vi)(A). Section 1026.19(e)(3)(ii) provides that if the creditor requires a service in connection with the mortgage loan transaction, and permits the consumer to shop for that service consistent with § 1026.19(e)(1)(vi), but the consumer either does not select a settlement service provider or chooses a settlement service provider identified by the creditor on the list, then good faith is determined pursuant to § 1026.19(e)(3)(ii), instead of § 1026.19(e)(3)(i). For example, if, in the disclosures provided pursuant to §§ 1026.19(e)(1)(i) and 1026.37(f)(3), a creditor discloses an estimated fee for an unaffiliated settlement agent and permits the consumer to shop for that service, but the consumer either does not choose a provider, or chooses a provider identified by the creditor on the written list provided pursuant to § 1026.19(e)(1)(vi)(C), then the estimated settlement agent fee is included with the fees that may, in aggregate, increase by no more than 10 percent for the purposes of § 1026.19(e)(3)(ii). If, however, the consumer chooses a provider that is not on the written list, then good faith is determined according to § 1026.19(e)(3)(iii).

.19(e)(ii) Limited increases permitted for certain charges. An estimate of a charge for a third-party service or a recording fee is in good faith if:

(A) The aggregate amount of charges for third-party services and recording fees paid by or imposed on the consumer does not exceed the aggregate amount of such charges disclosed under paragraph (e)(1)(i) of this section by more than 10 percent;

(B) The charge for the third-party service is not paid to the creditor or an affiliate of the creditor; and

(C) The creditor permits the consumer to shop for the third-party service, consistent with paragraph (e)(1)(vi) of this section.

The service provider list is only required for services that you require, but allow the consumer to shop for. In other words, services listed in Section C of the LE.

We have had the experience that the applicant identifies one of our providers in advance of the provider list. Is that shopping in advance or what? 10% tolerance? Dan's reply seems to contradict the threads above him? Is it 10% or not.

If the applicant chooses one of the providers on the list before the list is given, I would still provide the list, document the applicant's choice and consider it in the 10% category. If he chooses a provider that is not on your list I would do the same thing, but put it in the unlimited tolerance category.

I read Dan's citation to say if the creditor provides a list and chooses the service provider for a service listed in Section C, the cost for the service remains in the 10% tolerance group.

I also read the commentary at .19(e)(3)(iii)-2 to say that if the creditor puts a service in Section C and neglects to provide a Service Provider List the cost will remain in the 10% category (unless the borrower chooses a provider that is an affiliate of the creditor, then it ends up in the 0% increase category). The commentary is just preventing the cost from sliding into the group allowing for an unlimited increase

Agreed. We have and are doing exactly what you outlined. Thank you.