Using Average vs. Actual Costs For Credit Report Fees

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Question:

When we close a loan on the mortgage side we charge a $30 credit report fee. The actual fees are between $16.50 and $50. We averaged our actual costs and came up with $30; therefore, we are charging more for some customers and less for others.My question is is this practice permissable or do we have to charge actual costs.

Answer:

This may now depend on where you are doing business. While HUD maintains that markups are a violation of RESPA, the 7th Circuit ddn't agree. The OCC bulletin says that while you may not be subject to their criticism in these areas, you may not be insulated from being sued.

From OCC 20023, "Echevarria v. Chicago Title & Trust Co. will affect the range of transactions prohibited by Section 8(b) of RESPA (12 U.S.C. Section 2607(b)). The court’s ruling establishes the law in the territorycovered by the Seventh Circuit (the States of Illinois, Indiana, and Wisconsin). The Echevarria case dealt with the permissibility under Section 8(b) of “markups” the practice of charging a consumer more for a third party’s settlement services than is actually paid over to the third party. Although the Department of Housing and Urban Development (“HUD”) has stated that this practice is prohibited by Section 8(b), the Echevarria decision holds that this practice is not a violation, at least in certain circumstances.

Specifically, for loans subject to RESPA where the underlying real estate is in Illinois, Indiana, or Wisconsin, examiners should not cite a violation of Section 8(b) where: (1) a consumer is charged more for a settlement service provided by a third party than is actually paid to the third party, and (2) the third party is not involved in the markup."

First published on BankersOnline.com 2/4/02