TRID and Fee Disclosure When the Consumer is Allowed to Shop

Issue/Inquiry

Should the settlement service provider shown on the written list of service providers be the same as the one used for the fee disclosed on the Loan Estimate?

Response Summary

There is no requirement for the fee shown on the Loan Estimate to be that of a particular service provider, but as a matter of best practice, the fee for the service shown on the Loan Estimate should be the highest fee of the service provider on the list charging the highest amount, in order to allow the greatest tolerance cushion if the borrower chooses a provider from the list.

Response Detail

Under the TILA-RESPA Integrated Disclosure (“TRID”) rules of Regulation Z, a creditor must provide an itemization on the Loan Estimate of each amount and a subtotal of all such amounts the consumer will pay for settlement services for which the consumer can shop for. 12 CFR §1026.37(f)(3).

As with any disclosure on the Loan Estimate, the amounts of the fees must be disclosed in good faith. If any information necessary for an accurate disclosure is unknown to the creditor, the creditor shall make the disclosure based on the best information reasonably available at the time the disclosure is provided to the consumer. The “reasonably available” standard requires that the creditor, acting in good faith, has exercised due diligence in obtaining the information. Official Interpretations, 1026.19(e)(1)(i) – 1.

This means that the creditor cannot simply enter an arbitrary amount. If the disclosure is made in good faith, then it must correspond to a charge that will likely be made by a service provider.

If the creditor permits the consumer to shop for a settlement service, it must provide the consumer with a written list identifying at least one available provider for that service. The settlement service providers listed must correspond to the settlement services for which the consumer may shop. Official Interpretations, 1026.19(e)(1)(vi) – 3.

The creditor is not required to disclose on the written list the fees charged by the settlement providers. Rather, only sufficient information needs to be provided that will enable the consumer to contact the provider. This would include the business name, address, and telephone number of the service provider. Official Interpretations, 1026.19(e)(1)(vi) – 4.

There is no requirement that the charges on the Loan Estimate must be the same as that of any service provider listed on the written list of service providers. However, as a practical matter, a charge itemized on the Loan Estimate should be the highest one charged by any of the listed providers. The reason for this is that if the creditor permits the consumer to shop for a service, and the consumer chooses a provider on the written list of service providers, the charges for third party service providers will be grouped together and subject to a 10 percent cumulative tolerance. The creditor can charge the consumer more than the amount disclosed on the Loan Estimate for any one of the charges, as long as the total sum of the charges does not exceed the sum of all such charges by more than 10 percent. 12 CFR §1026.19(e)(3)(ii).

If there is more than one service provider listed for the service and the estimated charge on the Loan Estimate is based on that of the service provider charging the most, the creditor will have more of a cushion, if the consumer chooses a service provider charging less. This cushion will militate against the creditor being out of tolerance, if the charges for other services are more than was estimated.

On the hand, if there is only one service provider listed, the charge itemized on the Loan Estimate should be based on the charge of that provider. If the creditor disclosed a lesser sum on the Loan Estimate than that service provider would charge, and the consumer selected that service provider, it would simply increase the fees paid by the consumer over such disclosed in the Loan Estimate. If this increase, either alone or with other third party service fees, causes the aggregate amount to exceed the amount disclosed on the Loan Estimate by more than 10 percent, the creditor would have the choice of either reimbursing the consumer or paying the difference itself.

Therefore, in answer to the Bank’s question, it would not be required to disclose a fee on the Loan Estimate that was the same as that of a particular service provider listed on the written list of service providers, but the amount should correspond to that of the charge of a service provider on the list, and it would be prudent if the fee disclosed was that of the service provider charging the highest amount for its services.

This entry was posted on Tuesday, February 21st, 2017 at 1:34 pm.