Hi BOLers,

I need some help here regarding prepaid finance charges paid from the first advance of a HELOC plan. Given the below, do I need to itemize the PPFCs paid from the first advance or can I lump them together as "loan fees"? The commentary is silent and 7(a)(6)(I)(2) doesn't seem to address my situation as my fees are neither periodic rates, transaction charges, or minimum charges.

For example: Our actual PPFCs on this loan were Doc Fee $250/LOL Flood $15.

8. Start-up fees. Points, loan fees, and similar finance charges relating to the opening of the account that are paid prior to the issuance of the first periodic statement need not be disclosed on the periodic statement. If, however, these charges are financed as part of the plan, including charges that are paid out of the first advance, the charges must be disclosed as part of the finance charge on the first periodic statement. However, they need not be factored into the annual percentage rate. (See § 1026.14(c)(3).)

1026.7(a)(6)(i) Finance charges. The amount of any finance charge debited or added to the account during the billing cycle, using the term finance charge. The components of the finance charge shall be individually itemized and identified to show the amount(s) due to the application of any periodic rates and the amounts(s) of any other type of finance charge. If there is more than one periodic rate, the amount of the finance charge attributable to each rate need not be separately itemized and identified.

Thanks Randy. I guess I'm looking for some explanation as to how this is functionally done.

Let's say that first advance is expanded to include other charges financed, beyond the PPFCs, I guess we list each fee financed on the first statement, even if that list grows to about eight different items?

https://www.federalreserve.gov/boarddocs/meetings/2009/20090723/g-24(b).pdf

Any BOLers out there want to pull a sample HELOC statement and clarify the layout when fees are financed into the first draw?

We don't allow fees to be financed in the first draw, so I can't help you on this one!

You might find this helpful:

https://www.minneapolisfed.org/publicati...odic-statements

Thank you.

I would like to expand on this topic. In an FDIC quarterly newsletter dated March, 2015 where they are discussing the common violations found with HELOCs, one item discussed was that "other charges" were not itemized and identified by type on the periodic statement (1026.7(a)(6)(ii). The example that they give is an appraisal fee that is financed by an advance on the line should be itemized as "Appraisal Fee. . . $XX" on the periodic statement. I thought that I understood this but am now being challenged as to why this would need to be itemized on the periodic statement since it is itemized on the initial disclosure and the agreement.

Can anyone explain and help me understand, or am I misinterpreting the information in the newsletter?

If those costs are being paid with an advance on the line - it is both unless they are specifically labelled as closing costs in the agreement:

Similarly, closing costs or settlement costs, for example, may be used to describe charges imposed in connection with real estate transactions that are excluded from the finance charge under §1026.4(c)(7), if the same term (such as closing costs) was used in the initial disclosures and if the creditor chose to itemize and individually disclose the costs included in that term.

OK so if the settlement costs or closing costs are not identified in the credit agreement, then they must be identified and itemized on the periodic statement? Or, if they are identified and itemized on the credit agreement, then can be lumped together on periodic statement as settlement costs or closing costs?

If you listed your other costs on the credit agreement:

Closing Costs:
Appraisal $xxxx
Flood Hazard Determination $XX
Survey $XXXX
Title Search $XXX

Then you could aggregate them together as Closing Costs on the first periodic statement.

If, however, on the credit agreement you have a set-up such as:

FEES AND CHARGES - In addition to the interest portion of the FC, I agree to pay these additional fees and charges:

Loan Fee: $xxx
appraisal: $xxx

You would have to label that FEES AND CHARGES for the draw description, right? It couldn't be changed to LOAN FEES and be considered okay, is that correct?

The other part that bugs me is that there is a section for FEES and says there are no fees for this period. Since it's the intial statement and the fees were the first draw, would those not need to appear in this section, rather than in the Transaction section?


[I detest HELOCs]

Well, a loan fee is a finance charge and would have to be labeled as such in the disclosure. It could not be lumped into other charges. Additionally, if paid out of the first advance, they would have to be added into the finance charge on the first statement, but would not impact the APR disclosure.

Sorry, I thought I labeled the above better. Under Fees and Charges on the agreement, it does label the Loan fee as a Finance Charge.

so on the statement summary, that loan fee should be added to the Unpaid interest charge, correct?

Then, under fees, you would list the appraisal.

Therefore, under YTD totals, you would have Interest charged this period, which would include the Loan Fee and total Fees charged would include the appraisal fee.

That make sense to me. For some reason, all of the regulatory portions pertaining to this just will not click in my head as to what they are really wanting done.

Are you complying with 1026.7(a) or .7(b)? There are no YTD disclosure requirements on a HELOC statement unless you are optionally complying with .7(b).

What "Unpaid Interest Charge" disclosure?

From the layout, I'd say it's .7(b)

Under "summary of account activity' there is a line item 'unpaid interest charge' which is the interest due from the billing cycle.

Reviving this thread: If you use .7(b) do you have to itemize and label the loan fees paid out of the first draw as finance charges? I'm really having a hard time figuring it out under .7(b). Much clearer under .7(a), in my opinion.