TRID and Overnight Delivery Fee Paid to Bank

Issue/Inquiry

The Bank disclosed a fee in Section H of the Closing Disclosure that was paid to it directly for overnight delivery, as it was a prepaid fee and a prepaid finance charge. Was it correct in doing so? If not, where should the fee be disclosed?

Response Summary

Fees disclosed in Section H of the Closing Disclosure are those which the consumer or seller has incurred but which are not required by the lender. Consequently, the fee paid to the Bank for overnight delivery should not have been disclosed in Section H, since it was required by the Bank. Such a fee was not a “prepaid” fee for the purposes of the TRID rules, which would include items such as hazard and mortgage insurance or taxes that are collected prior to the first scheduled payment. A prepaid fee is to be disclosed in Section F of the Closing Disclosure. A payment made directly to the Bank for overnight delivery could be disclosed in Section A as an Origination Charge, if the Bank considers it a normal business overhead expense. If the fee was simply passed through to the service provider, it should be disclosed in Section B – Services Borrower Did Not Shop For.

Response Detail

Under the TILA – RESPA Integrated Disclosure (“TRID”) rules, fees disclosed in Section H – Other of the Closing Disclosure are those which have been incurred by the consumer or seller but are not required by the creditor as a condition of the loan. They include all real estate brokerage fees, homeowner’s or condominium association charges paid at consummation, home warranties, inspection fees, and other fees that are part of the real estate closing but not required by the creditor or not disclosed elsewhere as loan costs, property taxes, prepaids, or initial escrow. Official Interpretations, 1026.38(g)(4) – 1.

Since the Bank required the overnight delivery as a condition of the loan, it would not be appropriate to disclose the fee for such a service in Section H.

The fee for the overnight delivery service may be a finance charge, since a finance charge includes fees and amounts charged by someone other than the creditor, if the creditor requires the use of a third party as a condition of or an incident to the extension of credit, even if the consumer can choose the third party. 12 CFR 1026.4(a)(1). Whether it is a finance charge, however, is not relevant to where it should be disclosed as a closing cost.

Likewise, the fact that the fee for the overnight service may have been paid in advance does not have a bearing on what section of the Closing Disclosure it should be disclosed in, other than using the “At Closing” or “Before Closing” columns. For TRID purposes, a “prepaid” fee is not simply a fee paid before closing, but a certain kind of fee paid in advance of the first scheduled payment of the loan. Prepaid items include the interest due at consummation for the period before interest begins to accrue for the first scheduled periodic payment and certain periodic charges that are required by the creditor to be paid at consummation.

Examples of periodic charges that are disclosed pursuant to prepaid items include:

• Real estate property taxes due within 60 days after consummation of the transaction
• Past-due real estate property taxes
• Mortgage insurance premiums
• Flood insurance premiums
• Homeowner’s insurance premiums. Official Interpretations, 1026.37(g)(2) – 1; 1026.38(g)(2) – 1.

Each item must be disclosed in Section F – Prepaids, and include the applicable time covered by the amount to be paid by the consumer and the total amount to be paid. CFPB, TILA-RESPA Integrated Disclosure Guide to Loan Estimate and Closing Disclosure Forms, 3.3.2.

The fee in this case is paid directly to the Bank and not to the service provider. If the Bank considers the fee for overnight delivery a normal business overhead expense, such as rent, wages, utilities, and so on, it should not be separately itemized, but can be disclosed in Loan Costs, Section A – Origination Charges. “Origination charges” are those charges paid by the consumer to each creditor and loan originator for originating and extending the credit, regardless of how such fees are denominated. Official Interpretations, 1026.37(f)(1) – 1;1026.38(f)(1) – 1; CFPB, Small Entity Guide TILA-RESPA Integrated Disclosure Rules, 13.4.

Other than for points charged relating to the transaction to reduce the interest rate, for which specific language must be used, the creditor may use a general label with terminology describing the service that is disclosed as an origination charge. Items that are listed under the subheading “Origination Charges” may include, for example, application fee, origination fee, underwriting fee, processing fee, verification fee, and rate-lock fee. The creditor can determine the extent to which such fees are itemized, except for:

• Compensation paid directly by a consumer to a loan originator that is not also the creditor
• A charge imposed to pay for a loan level pricing adjustment assessed on the creditor, which the creditor passes onto the consumer as a charge at consummation and not as an adjustment to the interest rate. Official Interpretations, 1026.37(f)(1) – 1, 3, 5.

While the Bank received the fee for overnight services, a fee is not considered “paid to” a person if the person does not retain it. For example, if a consumer pays the creditor for an appraisal and the creditor subsequently uses those funds to pay the appraiser, then the appraisal fee is not “paid to” the creditor. Official Interpretations, 1026.19(e)(3)(i) – 3.

If the Bank does not regard the fee paid to it for overnight delivery a normal business overhead expense, but passes it on to the service provider, it should be disclosed in Section B – Services the Borrower Did Not Shop For. Under this subheading, an itemization is made for each of the settlement services required by the creditor which the consumer did not shop for and which were provided by persons other than the creditor. The disclosure provides the name of the person ultimately receiving the payment for such amount and the total of all such itemized amounts that are designated borrower-paid at or before closing. 12 CFR 1026.38(f)(2).

This response is for informational purposes only and is not intended for legal guidance.

This entry was posted on Monday, September 28th, 2020 at 9:13 am.