Truth In Lending: "Certain" Security Interest Charges

Since before Rodash v. AIB Mortgage, there has been disagreement about how to treat certain fees charged to the creditor for filing documents to perfect security when the creditor passes the charge on to the customer. Some have argued that the fee is a finance charge because the creditor is passing on to the consumer a fee that is actually charged to the creditor. Others have argued that the fee should be excluded from the finance charge because they are similar to other fees that are excluded for real estate secured transactions.

The FRB has settled the debate in this revision to Regulation Z. These fees, often referred to as "intangible property taxes" because they are levied on the document filed rather than on the property, may be excluded from the finance charge if incurring the fee or tax is a requirement for recording the instrument and the fee or tax is properly disclosed.

New paragraph ?226.4(e)(3) provides that these charges may be excluded from the finance charge, regardless of when the fee is paid, if the fees are properly disclosed. Disclosure must be consistent with the requirement in ?226.18(o) that the fees be itemized and disclosed.

The disclosures required by ?226.18(o) may be placed outside the "federal box" of Truth in Lending disclosures. Thus, itemization of these fees on the HUD-1 should be sufficient for compliance. For loans that are not subject to RESPA, the itemization and disclosure of these fees may be included with the Truth in Lending disclosures or on a separate sheet of paper.

ACTION STEPS

Review your disclosures and HUD-1s to identify filing fees and intangibles taxes. Check to be sure they are correctly disclosed. If not, determine whether they are included in the finance charge.
Notify all lending staff about the correct treatment of these fees. Provide examples showing the correct way to disclose them.
Identify any loans that are not subject to RESPA for which you pay intangibles taxes and determine how disclosures are prepared. Remind staff making these loans that they must itemize and disclose these fees to keep them out of the finance charge.