If a fee is not included as a Finance Charge, but the APR is not out of tolerance, how are those to be reimbursed. The total of amount not included less the $100 allowed?

Origination fee: $500 (included)
Settlement fee: $500 (not included)
Closing Protection: $50 (not included)

$550 not included. Is the entire $550 reimbursed to the customer or $450?

Depends on what you are trying to do - eliminate potential regulatory liability or consumer liability or foreclosure liability.

Most lenders kick the whole amount back and not worry about it. If the transaction was subject to the right of rescission, then the finance charge tolerance is $35 in the case of a foreclosure.

Thank you. Your help is so appreciated.

You didn't state which of Randy's possibilities is the genesis of your question, but if you are most concerned about civil liability (Section 130a of the TILA), then the answer is that you should take appropriate action to assure that the consumer pays no more than the FC actually disclosed, i.e.-refund the entire $550. Section 130 provides no tolerance for self-cures.

If, on the other hand, your concern is enforcement action by your regulator, then you can rely on Reg. Z's tolerances to excuse understatements of amounts less than those tolerances. Even if the understatement exceeds the regulatory tolerance, when you get to the reimbursement calculations, the "cross tolerance" rule can zero out any exposure to official reimbursement orders. The "cross tolerance" rule comes from the official Interagency TIL Enforcement Policy.

Good morning,

I would like to ask a question about the 35.00 maximum understated finance charge for a rescindable transaction in foreclosure. If the finance charge is understated by 75.00 on the day of consummation, on a rescindable transaction, and 2 years from now the borrower goes into foreclosure, can the borrower exercise the right to rescind because the finance charge was understated by more than 35.00?

No timeframe - runs for the life of the loan.

1026.23(h) Special rules for foreclosures. (1) Right to rescind. After the initiation of foreclosure on the consumer's principal dwelling that secures the credit obligation, the consumer shall have the right to rescind the transaction if:


(2) Tolerance for disclosures. After the initiation of foreclosure on the consumer's principal dwelling that secures the credit obligation:

(i) The finance charge and other disclosures affected by the finance charge (such as the amount financed and the annual percentage rate) shall be considered accurate for purposes of this section if the disclosed finance charge:

(A) Is understated by no more than $35; or

(B) Is greater than the amount required to be disclosed.

(ii) The total of payments for each transaction subject to § 1026.19(e) and (f) shall be considered accurate for purposes of this section if the disclosed total of payments:

(A) Is understated by no more than $35; or

(B) Is greater than the amount required to be disclosed.

Wow, thank you!

I was looking at a folder of a refinancing loan we purchased headed to a foreclosure attorney and noted there was a TIL error >$35.00. After a very brief discussion between compliance, collections and counsel, collections [after reading the effects of rescission 1026.23(d)] changed their attitude and decided to work with the customer.

...once again confirming that it's always cheaper to do it right the first time!

Richard, I didn't state which possibility...… it was more a secondary market issue and what we needed to do to make sure the loan got purchased. Thank you for the detailed explanation.

Investors will normally require a total cure.

When does the finance charge begin?

The various components of the FC become receivable whenever your promissory note (and any other documents that comprise the legal obligation between the parties) say they are earned, consistent with state law.

Promissory note dated June 3 then this is when FC begins?

It depends on how the note is worded. If it says something like "interest accrues from the date hereof...." then the whatever date is printed or written there is when the interest component of the FC begins. Very likely, that will also be the date the other types of FCs are due (non-interest charges.)

The note could also state a delayed accrual commencement date to allow for the right of rescission or a delayed first advance in a construction loan. In the absence of other types of (non-interest) FCs, then the FC begins on the stated (delayed) accrual date. When the note is written this way, the "note date" controls all the other promises and terms, but not the commencement of interest accruals.

If the note calls for delayed accruals but also provides for payment of all fees (some of which are probably FCs) at settlement, then the FC begins to be earned on the date of settlement...even though the interest part of the FC doesn't kick in until later.

Thank you