I have always excluded notary fees from APR calculations as it is listed under 4c7 as an excludable item. I have never had this challenged before today. Flagstar is saying that we need to include the notary fee of $125 in the APR. My first responses was obviously to cite 4c7. To which they replied that we could exclude the $5-$10 per signature portion of the fee but we would have to break out the charges and include the excess in the APR.

My response to this is that we do not need to break out the charges and that they are all excludable based on the lump sum rule provided by the commentary to 4c7.

Thoughts? Am I wrong here?

§ 1026.4(c)(7) Commentary
2. LUMP-SUM CHARGES.
If a lump sum charged for several services includes a charge that is not excludable, a portion of the total should be allocated to that service and included in the finance charge. However, a lump sum charged for conducting or attending a closing (for example, by a lawyer or a title company) is excluded from the finance charge if the charge is primarily for services related to items listed in § 1026.4(c)(7) (for example, reviewing or completing documents), even if other incidental services such as explaining various documents or disbursing funds for the parties are performed. The entire charge is excluded even if a fee for the incidental services would be a finance charge if it were imposed separately.

Arguing with an investor is usually futile, but without know exactly what services the $125 fee is paying for, it is hard to say. It seems to be a fairly steep fee for just the application of a notary.