Application fees, credit reports, and disclosure

Question: We charge all applicants a $75 application fee. We have a contract with a credit bureau under which we pay an annual fee for all credit reports pulled during the year. The cost usually amounts to about $2.00 per customer. We do not directly pass this on to the customer. Does RESPA require us to disclose this, and if so, do we have to take it out of the application fee?

Answer: HUD interprets RESPA to require you to disclose the cost of the credit report on each customer's HUD-1 or HUD-1A even if you don't directly charge the customer for the cost. The theory is that you really are passing on the cost somehow so the consumer should be made aware that the service was performed and at what cost. Personally, we prefer the TIL approach: if costs are being rolled up into something, they will be revealed in the APR. This makes much more sense - and takes much less work. Strictly speaking, to comply with HUD's interpretations, you should be showing a $2.00 cost as a p.o.c. You might also want to label this as an estimate, since the actual cost could turn out to be $2.03. (Can you tell our tongue is in our cheek?) As a practical matter, I can't see anyone - even someone who has spent too long at HUD - making a case based on a $2.00 fee.

Copyright © 2004 Compliance Action. Originally appeared in Compliance Action, Vol. 8, No. 14, 1/04