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FAQs
Question: The CFPB recently published the Fall 2024 issue of Supervisory Highlights. In this publication, they discussed several issues related to consumer automobile financing. One of the issues discussed was the itemization of fees paid to others by the creditor on the borrower’s behalf that are charged to the borrower and financed in the loan. We are not supervised by the CFPB. Are banks that are not supervised by the CFPB also required to itemize financed fees?
Answer: Yes. The requirement comes from Reg. Z which is a federal regulation applicable to banks of all sizes.
Section 1026.18(c)(1)(iii) requires a separate written itemization of any amounts financed that are paid to other persons by the creditor on the borrower’s behalf. These amounts could include fees paid to government agencies, credit reporting agencies, appraisers, and insurance companies. Examples include credit report fee, security notation fee, amounts paid to insurance companies, or valuation fee. If more than one insurance product premium is financed, these may be combined and listed in one sum labeled “insurance” or other similar term.
The itemization can be disclosed in one of two ways per Reg. Z:
- The creditor can itemize the amount of loan proceeds distributed directly to the consumer, the amount credited to consumer’s account with the creditor, and any amounts paid to their persons by the creditor on the consumer’s behalf and the prepaid finance charge. The creditor is also required to identify those persons to whom financed fees are paid. The Supervisory Highlight noted creditors were not properly identifying the third-party payees. Appendix H-3 in Reg. Z provides the model form for the itemization of amount financed.
- Alternatively, creditors can comply with this requirement by providing a statement that the consumer has a right to receive a written itemization of the amount financed and provide space for the consumer’s response.
Question: Our bank records mortgages electronically using Iowa Land Records. We are charged a fee for using this service by Iowa Land Records in addition to the recording fee charged by the county. For example, the county charges $70 to record the mortgage and Iowa Land Records charges $3 for their service. Is the whole $73 excluded from the finance charge or just the $70?
Answer: It depends. Fees paid to a public official (such as the county recorder) for perfecting a security interest are excludable from the finance charge. However, filing fees paid to a third-party are not excluded. Iowa Land Records is an entity managed by the Iowa County Recorders Association and Iowa counties, but in itself, is not considered to be a public official. If the whole $73 fee is disclosed as payable to Iowa Land Records, the whole fee is a finance charge. If the fees are itemized, with $70 disclosed as payable to the county recorder, and $3 disclosed as payable to Iowa Land Records, the $70 may be excluded from the finance charge, but the $3 is included in the finance charge.
Question: Since interest rates are rising, we have more customers interested in using their time certificates of deposit as collateral for loans in order to obtain a better interest rate. Can you remind me when we should and should not be checking the “required deposit” box in the Fed Box disclosure?
Answer: The “required deposit” disclosure is detailed in Regulation Z at § 1026.18(r) and is triggered if the creditor requires the consumer to maintain a deposit account as a condition of the transaction – which would be the case when the creditor requires the deposit account as collateral as a condition for a favorable interest rate. Section 1026.18(r) describes three types of deposits that are not considered required deposits: escrow accounts for items such as taxes, insurance and repairs; payments under a Morris plan; and a deposit that earns “not less than” 5 percent per year. The “not less than” language is a bit confusing. It means, if a deposit earns at least 5 percent per year (or more), no disclosure is required. This exception applies whether the deposit is held by the creditor or by a third party. Thankfully, the Official Staff Commentary to this section states, “Use of the phrase “need not” permits creditors to include the disclosure even in cases where there is doubt as to whether the deposit constitutes a required deposit.” This means the required deposit box can be checked consistently when a deposit account is taken as collateral for a loan regardless of the interest rate earned on the deposit, ensuring compliance with regulation.