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#2125053 - 04/04/17 11:53 PM Reg Z - Non-RE Consumer Loans - Fees POC
Mel in WA Offline
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If the borrower pays fees outside of closing for a non-real estate loan (i.e. taxes, licensing fee for a car/boat), should they be itemized in the loan documents?

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#2125141 - 04/05/17 04:37 PM Re: Reg Z - Non-RE Consumer Loans - Fees POC Mel in WA
Mel in WA Offline
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What about a HELOC? We normally don't charge the borrower any fees for a HELOC, but we have been written up for not including on the disbursement form an appraisal fee that was paid by the borrower because the loan amount was over $250,000.

It's never been an issue, but maybe we've been doing it wrong for years.....

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#2125224 - 04/05/17 09:42 PM Re: Reg Z - Non-RE Consumer Loans - Fees POC Mel in WA
rlcarey Online
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On your first question, unless the fee is a prepaid finance charge or paid from the loan proceeds, there is no requirement for it to be included in the itemization of amount financed.

As to your second question - what disbursement form??
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#2125322 - 04/06/17 04:47 PM Re: Reg Z - Non-RE Consumer Loans - Fees POC Mel in WA
Richard Insley Offline
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Originally Posted By Mel in WA
we have been written up for....
"Written up" in what manner, by whom, and based on what authority? "Findings" by auditors (internal or external), regulators, investors, and any other 3rd parties aren't worth the paper on which they are printed unless they explain exceptions and cite the law, regulation, rule, policy, etc., etc. violated.
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#2125842 - 04/11/17 05:44 PM Re: Reg Z - Non-RE Consumer Loans - Fees POC Mel in WA
Mel in WA Offline
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For the first scenario (boat loan under the Reg Z threshold), the exception is "title and closing fees were not included in the APR calculation, per 1026.4(a)(2) and 1026.18(b)". However, they were not financed, so we have never disclosed these fees since the buyer would pay them as part of purchasing the boat, whether it was financed or not.

rlcarey - The Disbursement and Authorization Form generated with the loan documents. It breaks out how the loan proceeds were disbursed (i.e. wire to escrow). Since the borrower paid the appraisal fee outside of closing, should we itemize/disclose it even though it was not financed?

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#2125862 - 04/11/17 06:53 PM Re: Reg Z - Non-RE Consumer Loans - Fees POC Mel in WA
rlcarey Online
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If these fees are payable by the consumer regardless of whether they pay cash or finance the boat, I suggest encouraging the auditors to re-read their citation of 1026.4(a): "It does not include any charge of a type payable in a comparable cash transaction."

The regulation requires that you either give the consumer an itemization of amount financed or the option to receive one. The form you are referencing is not a form required by Regulation Z, so it is hard to opine on what you should or should not include on it..
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#2125929 - 04/11/17 10:49 PM Re: Reg Z - Non-RE Consumer Loans - Fees POC Mel in WA
Mel in WA Offline
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While the form is not required by Reg Z, the fees may be part of the finance charge. I'm trying to find out if we require the use of a closing agent for marine loans because of the citing below from 1026.4(a)(2):

(2) Special rule; closing agent charges. Fees charged by a third party that conducts the loan closing (such as a settlement agent, attorney, or escrow or title company) are finance charges only if the creditor:
(i) Requires the particular services for which the consumer is charged;
(ii) Requires the imposition of the charge; or
(iii) Retains a portion of the third-party charge, to the extent of the portion retained.

Official Interpretation
4(a)(2) Special Rule; Closing Agent Charges
1. General. This rule applies to charges by a third party serving as the closing agent for the particular loan. An example of a closing agent charge included in the finance charge is a courier fee where the creditor requires the use of a courier.
2. Required closing agent. If the creditor requires the use of a closing agent, fees charged by the closing agent are included in the finance charge only if the creditor requires the particular service, requires the imposition of the charge, or retains a portion of the charge. Fees charged by a third-party closing agent may be otherwise excluded from the finance charge under §1026.4. For example, a fee that would be paid in a comparable cash transaction may be excluded under §1026.4(a). A charge for conducting or attending a closing is a finance charge and may be excluded only if the charge is included in and is incidental to a lump-sum fee excluded under §1026.4(c)(7).

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#2125934 - 04/11/17 11:50 PM Re: Reg Z - Non-RE Consumer Loans - Fees POC Mel in WA
rlcarey Online
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Well, you have kind of switched on us here. Is this all one question? You stated: "so we have never disclosed these fees since the buyer would pay them as part of purchasing the boat"? So we need more detail. What is really happening? It is difficult to follow this when you have two products, one open-end and secured by real property and one closed-end secured by personal property. Which scenario are you referring too?
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#2126071 - 04/12/17 05:44 PM Re: Reg Z - Non-RE Consumer Loans - Fees POC Mel in WA
Mel in WA Offline
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First of all, I apologize for mingling two scenarios. I'm going to focus on one - the non-real estate consumer loan for a boat/yacht. A few things have been discovered.......

- The fees were for title and closing ($875)
- The Marine Loan Department requires the borrower to close with a marine title company (news to me)

Based on this new information, I believe the $875 needs to be included in the finance charge, per 1026.4(a)(2).

Now for the scary question: Since this has been going on for a while, how far do we need to look back??

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#2126075 - 04/12/17 05:58 PM Re: Reg Z - Non-RE Consumer Loans - Fees POC Mel in WA
rlcarey Online
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To your last exam.
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#2126117 - 04/12/17 07:51 PM Re: Reg Z - Non-RE Consumer Loans - Fees POC Mel in WA
Richard Insley Offline
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Mel - There's usually more than one answer to this question.

Randy's referring to the "last clean exam" cutoff point in the interagency enforcement policy on Reg. Z. That standard applies when regulators discover a reimbursable violation. Unless you've adopted the interagency policy as your bank's policy, it does not apply automatically if you discover the violation on your own.

Since it sounds like this is a self-discovery, you can (a) do nothing, (b) follow the interagency policy, or (c) take the "cure" described in Section 130b of the TILA.

If you do nothing, you are civilly liable under Section 130a of the TILA for one year after the date the erroneous TIL disclosure was delivered to each affected borrower. If one of these borrowers finds the problem and sues, you will lose and the court will order you to pay damages (the improperly classified $875 fee), plus a penalty, plus all of the court costs. If you're REALLY unlucky and the borrower's attorney discovers the problem is systemic, then you will lose a class action lawsuit and lots more money. On the other hand, you could get lucky and none of the borrowers sues--it's the Dirty Harry proposition.

Before feeling lucky, however, consider your regulator's routine inquiries (during compliance exams) about this sort of thing and their inevitable review of your internal audit reports. If they find it, they find it on the record. Then, they apply the interagency enforcement policy. That's where the "clean" part of the rule becomes important. Twenty years ago, the courts ruled that the banking regulators must count every exam they conduct when they determine the "last clean exam", not just the compliance exams. That would mean, for example, if the agency did a trust exam last week and there were no Reg. Z findings (because they excluded Reg. Z from the scope of the exam), that's the date of your last clean exam and any Reg. Z enforcement order could not apply to violations you committed before that date.

If I were in your position, I would do a 130b cure. It requires you to look back one year, but you could volunteer to go farther back. When you find faulty disclosures, you must notify each affected borrower that you discovered a violation involving the TIL disclosure you delivered at consummation of the loan. You can describe the violation if you want, but that's up to you. Most importantly, you must take whatever action necessary to assure that the borrower pays no more than the understated FC you disclosed in error (or dollar equivalent in cases where the APR is understated.) In this case, you understated the FC by $875. Unlike APR cures which accrue time value, FC understatements require a simple dollar for dollar refund of the amount of the understatement. So, therefore, you will send a check for $875 enclosed in a letter saying "Dear customer, we audited your loan, discovered an error in the TIL disclosure, and owe you the amount of the enclosed check. Have a nice day."

By doing a 130b cure, you eliminate the risk of a TIL lawsuit and the risk of an unresolved Reg. Z finding by your regulator.
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#2126207 - 04/13/17 06:35 PM Re: Reg Z - Non-RE Consumer Loans - Fees POC Mel in WA
Mel in WA Offline
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Thanks to everyone that commented on this topic. Very helpful and a good learning experience for me.

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