I'm getting myself too confused on this! I'm thinking it falls along the same lines as the credit report, but if we run a verification of employment prior to an application, we can still pass the fee along on the Loan Estimate at the time of initial disclosures (regardless of not being within three days of the run). We just wouldn't be able to collect it until after the borrower gives their intent to proceed, correct?

we run a verification of employment prior to an application,

How in the world do you have enough information to do this prior to an application being received? Sounds like pre-sceening activity to me.

we don't usually run a VOE, this particular team did on this applicant and wants to add the fee upfront.

Official Interpretation
19(a)(1)(ii) Imposition of Fees
1. Timing of fees. The consumer must receive the disclosures required by this section before paying or incurring any fee imposed by a creditor

IMO if you pass on the fee now you have imposed, and the consumer incurred a fee due to your actions, prior to receiving the LE and providing their intent to proceed.

I am much more concerned about the fair lending issue that this causes: "this particular team did on this applicant"

I would want to know the specifics as to the "why" this happened and to make sure policies do not allow this to happen again. The $25 from the VOE is by far not the concern here. Personally, I would make who did this eat it, whether or not you thought they might be able to assess it and use this as a "learning moment"..

After speaking with upper management, we are requiring the team eat the fee and issuing a corrective action notice to them regarding this practice. We definitely do not want anything to look as if our policies are okay with pre-screening.