Question & Answer

Question: In our Board's quarterly compliance briefing, one of the Directors asked me whether the bank can establish uniform loan fees for all of the banks in the system. We do business in several markets with different pricing structures. Would this policy be a problem under RESPA?

Answer: RESPA uses fair market value as a measurement to determine whether practices violate the act. When a fee is under question, RESPA looks first to the fees charged by others providing the same service and to the substance of the work performed. Adopting a uniform rate throughout the holding company may result in adopting a fee that is competitive in several markets but high in one. For example, prices charged in high-cost urban areas may be significantly higher than the charge for the same service in a small community. Consequently, for each settlement service charge performed by the bank or by affiliates, it is best to base the fee on fair market value as measured by each market in which you do business.

However, one of the problems here is fair lending. If you have different price structures in different markets, you need to be alert to several concerns. First, be certain that each price is in fact based on the prices for comparable services in that market. Second, compare your markets. If you are looking at comparable prices set by other lenders in that market and there is any question of general discriminatory practices, you may not want to follow that market's pricing structure. For example, if prices are higher in market B than in market A, compare the demographics of the two markets. If market A has few minorities but market B has a large minority population, is it possible that the prices in market B are artificially high because of discrimination? If so, don't participate. Set your prices at a fair level rather than copy the competition.

Charging market rates is generally a sound policy under RESPA but may involve some fair lending risk. This is best controlled for by maintaining good documentation and regular self-assessment procedures. Charging a uniform fee throughout the system has relative safety under fair lending but risk under RESPA. Of course, it is always safe to charge less, but that's not necessarily the best way to stay in business. Whatever your policy, good research and compliance procedures are essential.

Copyright © 1996 Compliance Action. Originally appeared in Compliance Action, Vol. 1, No. 10, 6/96