Reg. Z states that if you charge an application fee to all applicants for a particular loan product, and that fee is charged across the board to everyone regardless of approval, then the fee can be excluded from the finance charge.
We charge an application fee for all of our mortgage loan products that appears to comply with this Reg. Z definition. However, I just discovered that if an applicant submits an application for the same product(s) online, they do not have to pay the fee until and uless the loan is approved.
Does this effectively blow us out of the water as far as exclusion from the finance charge is concerned, or can we consider an online application as a special product?
Thanks!
Leslie

The commentary to 226.4(c)(1) states "the creditor is free to impose the fee in only certain o fits loan programs...." I think that you can make a good argument that online mortgage applications are a different product - but, as I said, I think you will have to argue this one. I think I would run this by my friendly examiner. It is definately a new twist. Good luck.

I think you need to base your decision on the costs you can prove you are covering with the fee. You're going to have to argue that there are differences in the costs incurred for the e-version of the mortgage vs. the face-to-face version. Remember the Commentary defines such a fee as "...a charge to recover the costs associated with processing applications for credit. The fee may cover the costs of services such as credit reports, credit investigations, and appraisals...." The further from these enumerated costs you drift, the tougher the sell to your friendly bank examiner.

Richard,
The cost is the same, its just that the one for face-to-face is collected up front (before and regardless of approval) and the other (online) is collected after the fact and only after the application is approved. That is where I have a concern.
Leslie

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

I'm with David in thinking that it is a prudent step to run this by your examiner. I know the airlines charge different prices based on how the travellor purchesed the ticket, but I'm not sure how easy a sell that would be to examiners. I can argue it either way and feel confident. But the critical issue is how your examiner sees it.

Why not put it in the FC & APR and be done with it?

Ah, Richard. Life is so simple when you want to comply...

The head of our mortgage division is VERY BIG and VERY LOUD and VERY SCARY! Simple answers (from a compliance stance) don't always work in the mortgage-sales world! I wish they did!
Leslie

Don't you just love it when Department Heads want to intimidate the Compliance Officer? Here's what I hate - Department Head blows up about some compliance issue and tries to force the Compliance Officer into agreeing with whatever fee, procedure, etc., the Department Head wants.

Then, come examination time when the issue becomes a big time compliance violation with penalities, restitution, file searches, etc., the Department Head will say "It's not my fault, the Compliance Office approved it!"

Stand your ground. Tell the big scary mortgage person "Look, I don't write these rules and I have NO CONTROL on whether or not this is a violation. However, it would be better if I find the violation and we correct it now than to have an examiner hand your head to you on a silver platter."

I try to take the tactic that I am there to make sure they don't get into trouble during an exam. If the Mortgage person won't listen to you, then do memos all the way around outlining your concerns and what courses of action you see as options.

That's so true, Bonnie. I also like the Bob Chamness method: offer sympathy, understanding, and then gently but firmly restate how things just have to be done. Bob even shakes his head a little -- but never gives any ground. Works like a charm -- at least when a tall person does it!

Leslie- Is your job performance evaluation tied to exam results?

If not, I'd simply document this as an instance where management disagreed with my learned opinion and let the consequences fall on him when the restitution order arrives. If so, I'd get my job description revised so that I'm not accountable for the obstinate behavior of those who outrank me.

A C/O can never be more than an advisor. Ultimately, it's up to line managers to embrace, fund, staff, and enforce any regulatory procedure.