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Truth in Lending: 3.9.6.3.6 Investigating third-party fees

Fees to closing attorneys or other settlement agents should be carefully scrutinized in particular when the consumer is also separately billed for the excludable services.977 For example, when investigating a notary fee it would be helpful to ask the following questions:

Truth in Lending: 3.9.6.3.7 How much of the fee is part of the finance charge?

Another issue that can significantly impact liability is whether the entire fee that is not bona fide and reasonable should be disclosed in the finance charge, or only the difference between the amount that is bona fide and reasonable and the amount that was charged. Given the tolerances built into TILA via the 1995 amendments,980 correctly assessing the amount of the undisclosed finance charge can make the difference between liability and exoneration.

Truth in Lending: 3.9.6.4.1 The HUD Settlement Statement and Good Faith Estimate forms

In November 2008 the Department of Housing and Urban Development released amendments standardizing the good faith estimate form and changing the settlement statement.995 While the changes improve consistency and clarity, they omit or obscure some charges relevant to calculating the finance charge.996 Particularly difficult may be determining the allocation of broker compensation.997 The use of these forms is required in all “federally related

Truth in Lending: 3.9.7.1 Overview

Some charges imposed in connection with a security interest may be excluded from the finance charge under prescribed conditions in both real-estate-secured loans and non-real-estate loans. This exclusion covers taxes and fees that meet the following criteria:

Truth in Lending: 3.9.7.2 Taxes; Recording and Filing Fees Prescribed by Law

This provision encompasses taxes and fees for determining the existence of or for perfecting, releasing, or satisfying a security.1045 It does not capture fees to record an assignment of the mortgage, or any other filing fees that relate to a transaction between the creditor and a third party, such as an assignee.1046 In order to be excluded from the finance charge, the fee should be necessary for perfecting the security interest and actually required by law.

Truth in Lending: 3.9.7.3 Nonfiling Fees

Sometimes a creditor will find it easier or less expensive to pay an insurance premium in lieu of perfecting the security interest. A nonfiling insurance policy will pay the creditor if the collateral is lost to it because the security interest was not perfected.

Truth in Lending: 3.10.1 Overview

Creditors, third parties, and sellers may agree to pay some of the closing costs for the borrower. This is more common in consumer credit transactions secured by real estate than in other types of consumer credit. Seller credits occur only when the consumer is buying the real property and the seller agrees to cover some of the consumer’s closing costs.

Truth in Lending: 3.10.2.1 Lender Credits

The CFPB determined that a credit provided by the creditor can offset a specific fee if the legal obligation so provides in the TILA-RESPA context.1083 Note that the TILA disclosure itself does not constitute the “legal obligation.” Rather, the legal obligation includes the loan note and any other documents relevant under state law. When the legal obligation so provides, the creditor can apply the credit to a specific fee.

Truth in Lending: 3.10.2.2 Seller Credits

Like creditor offsets, seller credits will be treated as general or specific depending on the terms of the purchase and sale agreement and other relevant documents between the seller and borrower in the TILA-RESPA context.

Truth in Lending: 3.10.2.3 Third-Party Credits

This category of credits includes those from a real estate agent or real estate developer. Under the TILA-RESPA rules, the CFPB treats these in the same fashion as lender and seller credits. If the credit is paid to cover a specific fee owed by the borrower, the credit is listed in the “Paid by Others” column in the “Closing Cost Details” table on the closing disclosure.1088 The finance charge total can be reduced by the amount of any credit applied against a specific fee that constitutes a finance charge.

Truth in Lending: 3.10.3 Treatment of Credits in Other Loan Contexts

Credits rarely appear in the non-mortgage loan context. Nonetheless, the same principles should apply and consumers should look to the contract and other relevant documents between the consumer and the third party to assess whether a credit against a particular fee is permitted.

Truth in Lending: 3.11.1 Overview

One of the underlying assumptions for the “more than four installments” rule1092 is that merchants might circumvent the objective of TILA by “burying the cost of credit in the price of the goods sold.”1093 The mere fact that a transaction falls within the more than four installment rule does not necessarily mean that a finance charge is involved.1094 But a transaction within the scope of TILA that has no finance charge, a nominal finance char

Truth in Lending: 3.11.2 Proving the Credit Mark-Up

Some sellers may actually admit a differential pricing structure, and certainly this information should be sought in discovery if the practitioner suspects a hidden finance charge.1117 Or a credible witness may be sent to the business to obtain price quotes for a cash purchase, and a second to obtain a price quote after making it clear to the seller that the shopper wants seller financing.1118

Truth in Lending: 3.12.1 Collecting the Papers

While a Truth in Lending analysis has to start with the Truth in Lending disclosures, it frequently does not end with them. Some lenders incorporate everything—note, security agreement, and all TILA disclosures—on one piece of paper. Most car loans and some finance companies (at least on non-mortgage loans) will use this single, integrated document. Other lenders have disclosure statements separate from the note and mortgage or security agreement.

Truth in Lending: 3.12.2.1 Level One

A thorough check of the disclosed figures takes place on three levels.

Do a basic check, taking the creditor’s disclosed figures at face value. Just assume for the moment that the component parts of the loan are all legitimate, and it has allocated them correctly.

Doing a basic arithmetic check on Friendly Finance’s disclosure statement, we see that:

Truth in Lending: 3.12.3 Looking Behind the Papers

Most often, the paper analysis is not the end of a compliance check. More common are charges that are the subject of the exclusionary rules, where the preconditions necessary to qualify are questions of fact. Similarly, there are the “mystery” charges, which you cannot identify. Moreover, occasionally the most innocent-looking item on the list—such as “check to borrower”—can be concealing hidden finance charges, if not outright fraud. The next level of analysis, therefore, is factual investigation. Some of it can be learned from a careful client interview and some from public records.

Truth in Lending: 9.1.3 Credit Balances Rule for Mortgage Loans

For all consumer credit transactions, including mortgage loans, TILA requires creditors to credit or otherwise refund a balance in excess of one dollar when such balance was created by a transmittal of funds in excess of the total amount due, a rebate of unearned finance charges or insurance premiums, or amounts otherwise owed to or held for the benefit of an obligor.16 The creditor is required to credit the amount to the consumer’s account, refund any part of the amount of the remaining balance upon request of the consumer, and make a good

Truth in Lending: 9.2.1 Overview

The CFPB is required under TILA to prohibit acts or practices in connection with loans that it finds to be unfair, deceptive, or designed to evade the provisions of section 1639.18 The CFPB’s authority to identify and ban unfair, deceptive, or abusive acts and practices has survived constitutional arguments that this provision is void for vagueness.19 In addition, the CFPB is to prohibit acts or practices specifically related to refinancing that it finds to be abusive or otherwise not in the

Truth in Lending: 9.2.2 Remedies for Violations of Regulations Issued Under the CFPB’s Authority to Prohibit Unfair, Deceptive, or Evasive Practices

The FRB first used its authority under then section 1639(l), now 1639(p), to issue regulations in 2008.27 Those regulations addressed a variety of servicing abuses for loans secured by the homeowner’s principal dwelling, set some basic standards for appraisals, and created a new category of higher-priced mortgages, with additional, substantive protections.28

Truth in Lending: 9.3.1 Overview; Scope; Record Retention and Monitoring Requirements

On July 21, 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act was signed into law.37 As part of the sweeping changes in this financial reform bill, Congress amended TILA in Title XIV of the Act to include a variety of substantive provisions relating to mortgage lending and servicing, and to provide for additional damages for certain of these violations.38

Truth in Lending: 9.3.2.1 Overview

Rules issued by the FRB went into effect April 1, 2011,50 and remained in effect until January 1, 2014, when new rules issued by the CFPB, under the Dodd-Frank Act, went into effect for loans with applications made on or after that date.51 The rules are similar, but not the same. Both rules generally prohibit dual compensation and compensation based on the terms of the mortgage, other than the amount of credit extended, although the CFPB’s rules have some significant exceptions.