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Charging Fees For Flood Certification

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Question: 
What are the regulations on charging a fee for flood certification. And can a bank charge the customer more than the bank paid for it?
Answer: 

The Staff Commentary to the Truth in Lending Act [Section 226.4(c)(7) #3] states "real estate or residential mortgage transaction charges excluded under Section 226.4(c)(7) are those charges imposed solely in connection with the initial decision to grant credit. This would include, for example, a fee to search for tax liens on the property or to determine if flood insurance is required. The exclusion does not apply to fees for services to be performed periodically during the loan term, regardless of when the fee is collected. For example a fee for one or more determinations during the loan term of the current tax lien status or flood insurance requirements is a finance charge, regardless of whether the fee is imposed at closing, or when the service is performed. If a creditor is uncertain about what portion of a fee to be paid at consummation or loan closing is related to the initial decision to grant credit, the entire fee may be treated as a finance charge."

Therefore, a fee to prepare a Standard Flood Hazard Determination Form is not a finance charge. A fee to perform life of loan monitoring is a finance charge. If you don't know how much is for which part, you can include the entire fee in the finance charge.

RESPA Section 8 prohibits you from upcharging any fee. You could charge another fee for your time, such as a "flood determination review fee."

First published on BankersOnline.com 11/11/02

First published on 11/11/2002

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