As part of the Consumer Financial Protection Bureau’s (CFPB) 1099-page proposed RESPA/TILA rule, the CFPB is proposing some significant changes to Section 1026.4 of Regulation Z which defines the “finance charge.” Importantly, these proposed changes will result in a more inclusive finance charge, which, absent further action by the CFPB, will increase the number of closed-end mortgage loans that will be classified as high-cost mortgages (HOEPA loans), higher-priced mortgage loans (which will require escrow accounts for those that are first lien loans), and will also reduce the number of “qualified mortgages” under the Dodd-Frank Act’s ability-to-repay requirements since the points and fees test that is part of the QM standards begins with the annual percentage rate (APR). Currently, Regulation Z provides for exclusions of certain charges from the finance charge and associated APR calculations.
Under the proposed rule, certain charges would continue to be excluded, such as fees or charges paid in comparable cash transactions, late fees and delinquency fees or default charges, fees for exceeding a credit limit, seller’s points, amounts required to be paid into escrow accounts (if the amounts would not otherwise be included in the finance charge), and premiums for property and liability insurance under certain circumstances. However, under the proposed rule, the finance charge would now include fees that have traditionally been excluded as “real-estate related” fees under Regulation Z. These fees would include fees charged by closing agents (including fees of other third parties hired by closing agents to perform certain services), fees for title examinations, abstracts of title, title insurance and property surveys, document preparation fees for items such as deeds, mortgages, and reconveyance or settlement documents, notary and credit report fees, appraisal fees and fees associated with pest-infestation, and flood-hazard determinations.
One other proposal being considered by the CFPB would provide that, for disclosure purposes, a finance charge is “accurate” if it does not vary from the actual finance charge by more than $100 or is greater than the amount required to be disclosed.
Credit Union National Association (CUNA) is currently seeking comments on this aspect of the proposed rule, and comments are due to the CFPB by September 7. Click here for CUNA’s Comment Call. We will be reaching out to our Consumer Protection Subcommittee and Housing Finance Reform Task Force to obtain additional input for the comment letter in advance of this due date. For the remainder of the proposed rule, comments are due to the CFPB by November 6, and CUNA will be releasing a second comment call in the next few days on these remaining sections of the proposed rule.