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#2977 - 07/19/01 04:28 AM Reg Z & application fee waiver for employees
Last Mango Offline
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Joined: Mar 2001
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Too Far From the Beach
Reg Z allows you to exclude application fees in the finance charge if the application fee is charged for all loans within a class. Someone recently told me the rule excluded certain special program loans like employee loans and first time homebuyer programs. I have searched the rules and opinions and cannot find any exclusion. Does anyone know of such exclusion?
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General Discussion
#2978 - 07/18/01 07:00 PM Re: Reg Z & application fee waiver for employees
BankerMama Offline
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BankerMama
Joined: Jun 2001
Posts: 1,543
I am not aware of any exemptions at all.

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#2979 - 07/18/01 09:22 PM Re: Reg Z & application fee waiver for employees
Anonymous
Unregistered

Does anyone charge an application fee to all applicants, but, then, if the request is approved the fee would be credited to their doc. prep. fee?

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#2980 - 07/19/01 11:41 AM Re: Reg Z & application fee waiver for employees
Bear Collector, CRCM Offline
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Bear Collector, CRCM
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Posts: 1,830
District of Columbia
We charge an application fee to all applicants that is used to pay for the credit report and the appraisal fee if they are approved. I think what you are suggesting is better, because no third parties are involved; it is your fee and you are applying it to your own expenses. I wish I could convince our mortgage division to do that!
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#2981 - 07/19/01 11:55 AM Re: Reg Z & application fee waiver for employees
David Dickinson Online
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David Dickinson
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Central City, NE
Leslie - if it sounds too good to be true, it usually is. My experience as a FDIC Examiner and now as a consultant is that most banks have reimburseable violations when they try to implement the application fee program. Not that it can't be done, but most banks end up waiving this fee for one or more customers. Section 226.4(c)(1) indicates this is not a finance charge if it charged to ALL applicants. If you waive it once, it is now a finance charge to all of the customers that you charged.

As Doug indicated in his post, you can charge it to a certain class - such as car or home purchase loans, but don't waive this fee on even one customer!

Doug - I am not aware of any exception as you mentionned.

Anon - what you and Leslie mention is an application deposit. This is a great idea. Especially if you pull a credit report, appraisal, flood check, etc. and then the customer withdraws. Collect the deposit, perform the services and at closing show this as a deposit in the 200 section of the HUD-1 or line 1601 of the HUD-1A.

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#2982 - 07/19/01 01:04 PM Re: Reg Z & application fee waiver for employees
Anonymous
Unregistered

Would Anon have any fair lending issues here?
A fee is charged to ALL applicants initally, but if the request is approved, then it would essentially be waived by crediting it to the document preparation fee. The end result appears to be a charge on denials and withdrawals and waived on approvals. Admittedly, I'm not that familiar with an application deposit.

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#2983 - 07/19/01 01:12 PM Re: Reg Z & application fee waiver for employees
Last Mango Offline
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Joined: Mar 2001
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Too Far From the Beach
So Dave, based on my reading and your response, when a bank excludes the application fee from the disclosure, then for one or more loans, does not charge an application fee or refunds the fee, the Reg. Z disclosures for every loan within the class(eg. auto)would have understated finance charges and a potential reimbursement situation. Right?

[This message has been edited by Doug (edited 07-19-2001).]

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#2984 - 07/19/01 02:06 PM Re: Reg Z & application fee waiver for employees
Last Mango Offline
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Too Far From the Beach
Ralph, charging only the denials does not appear to be a fair lending issue in and of itself. However, a problem would surface if a disproportionate percentage of the denials were for a protected class. But, if that were the case, you would have a problem bigger than the charges – the likelihood that loans are being denied based on discrimination.


Any opinion expressed above is personal, certainly not the opinion of my employer, and may be worth as much as it cost.

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#2985 - 07/19/01 02:07 PM Re: Reg Z & application fee waiver for employees
David Dickinson Online
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David Dickinson
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Central City, NE
Doug - exactly right. The Finance charge is exception is granted IF I charge it to all. If I waive it once, the exception is no longer allowed. Therefore, all of the TIL disclosures for the loans where I didn't treat the fee as a prepaid finance charge now have an understated FC and APR. Whether they will be within tolerance depends on the loan amount and length to maturity, but it still is a TIL violation.

Ralph - I don't think this is illegal discrimination because this is applied towards the expenses of all loans and kept for all denials/withdrawals. There is not illegal treatment to any protected classes (at least it shouldn't be).

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#2986 - 07/19/01 02:22 PM Re: Reg Z & application fee waiver for employees
Last Mango Offline
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Joined: Mar 2001
Posts: 293
Too Far From the Beach
Thanks Dave. In reference to Leslie’s latest thread, she stated that on-line application fees are sometimes refunded. You indicated that she might make a case that on-line mortgage applications are a separate class from those taken in person. How is that “class” any different from a first time homebuyer program or employee loan program where an application fee is not charged but all other mortgages are charged?
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#2987 - 07/19/01 02:46 PM Re: Reg Z & application fee waiver for employees
Lucy Griffin Offline

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Lucy Griffin
Joined: Nov 2000
Posts: 1,544
Dave's analysis is absolutely correct. The key issue is being sure that you have a class of loans to which the fee is charged. Then you need to be sure the "application fee" is never refunded.

Interestingly enough, applying the application fee to a charge that is exempt from the finance charge keeps that fee exempt. The only people left paying the fee are the denials and since there is no credit there is no TIL or TIL violation.

As for fair lending, always be sensitive to the parallels between a credit practice and a prohibited basis, but I don't see a real risk here unless the lending practices in and of themselves were discriminatory. Then the fee issue might be used by a clever attorney to compound the damages.


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#2988 - 08/07/01 05:23 PM Re: Reg Z & application fee waiver for employees
Anonymous
Unregistered

Hey, please help with another question about the application fee. Let's assume the applicant is charged AND pays the fee "in cash at the time of application," then, must it still be disclosed as a finance charge on the TIL at closing? Thank you all for your explanations.

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