I am reviewing some combined TIL/Note/Security Agreements and noticed that our old lending software, which had static documents where we just marked the box if it applied, included "Prepayment - If I pay off this note early, I will not be entitled to a refund of part of the finance charge."
The new system has dynamic documents and doesn't include this disclosure. However, in the Note section there is a place where we disclose nonrefundable fees and charges. But this section doesn't disclose all of the fees for the transaction. For example, it will not include SII even though the parameters for that fee is marked that it is nonrefundable. In any case, I don't think this disclosure counts for the requirement at 1026.18(k)(2) because it doesn't say the disclosure can be in another location.
The problem is that I really don't understand what fees 1026.18(k)(2) applies to.
1. Rebate of finance charge. i. This applies to any finance charges that do not take account of each reduction in the principal balance of an obligation. This category includes, for example:
A. Precomputed finance charges such as add-on charges. This includes computing a refund of an unearned finance charge, such as precomputed interest, by a method that is less favorable to the consumer than the actuarial method, as defined by section 933(d) of the Housing and Community Development Act of 1992, 15 U.S.C. 1615(d). For purposes of computing a refund of unearned interest, if using the actuarial method defined by applicable State law results in a refund that is greater than the refund calculated by using the method described in section 933(d) of the Housing and Community Development Act of 1992, creditors should use the State law definition in determining if a refund is a prepayment penalty.
B. Charges that take account of some but not all reductions in principal, such as mortgage guarantee insurance assessed on the basis of an annual declining balance, when the principal is reduced on a monthly basis.
Does this apply to finance charges as in those that affect the APR? So would this include something like our processing fee that is nonrefundable if the loan is paid off early?
I'd appreciate it if someone could explain what fees would trigger this disclosure?
Thanks in advance.
Always learning something new...