[Matt]

We currently allow customers to finance their HELOC closing costs with a first draw against the loan. We have recently switched our core system and are double checking the statement setup. We use 1026.7(b) when producing the first statement.
In the past we have itemized all the fees under “Activity” and also listed any fees considered finance charge (processing, and flood LOL) under a separate section titled “Fees”. The fees section is then totaled for period and YTD.

The current system does not break out the finance charge related fees or total them. We are setting up the fees to be listed correctly and totaled but have had some questions if only the finance charge fees should be included or all fees should be included.

Under 7(a) the term “other charges” (1026.7(a)(6)(ii)) would seem to state these non-finance charge fees would not need to be listed or totaled. But since we are using 7(b) can we even use this section of 7(a)?
It does state “Creditors may comply with paragraphs (a)(6) of this section, or with paragraph (b)(6) of this section, at their option.”

It appears we did part 7(a) and part 7(b) in the past, but that doesn’t mean it was correct. 🙂

So…. were we doing it correct in the past… or should all fees (FC related or not) be under the fees section and in the period and YTD totals.
Additionally, if they are under the fees section, do they still need to be listed under the activity section?

Thank you for your help

[jholzknecht]

Matt,

Section 1026.7(a) which states, “(a) Rules affecting home-equity plans. The requirements of paragraph (a) of this section apply only to home-equity plans subject to the requirements of §1026.40. Alternatively, a creditor subject to this paragraph may, at its option, comply with any of the requirements of paragraph (b) of this section; however, any creditor that chooses not to provide a disclosure under paragraph (a)(7) of this section must comply with paragraph (b)(6) of this section.”

Clearly you are permitted to use either 7(a) or 7(b). As you point out your periodic statement contains elements of both 7(a) and 7(b). Using the heading “Fees” and providing totals for the period and YTD are consistent with use of 7(b). The failure to “break out the finance charge related fees or total them” is a concern under 7(b).

Based on your description, it appears that your current periodic statement does not comply with 7(b). Examiners typically consider consumer harm when deciding whether or not to cite a violation.

A related issue revolves around Comment 7(a)(6)(i) – 8 which states, “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).)” This comment applies when using 7(a) but not with 7(b). You claim to use 7(b), but your statement includes elements of both 7(a) and 7(b). It is possible that an examiner might cite a violation for failure to comply with Comment 7(a)(6)(i) – 8.

I suggest a thorough review of the existing statements. Has the existing core provider acknowledged responsibility for errors in the existing statement format? Equally important is assuring that the new core system produces a correct statement going forward.

[hdagnew01]

Jack,
Sorry just to confirm, if we choose to follow statement 7(b), then all fees that were paid out of the first draw would need to be in the “Fees” section of the statement, whether they are a finance charge or not?

[jholzknecht]

Section 1026.7(b)(6)(iii) states, “Charges imposed as part of the plan other than charges attributable to periodic interest rates must be grouped together under the heading Fees, identified consistent with the feature or type, and itemized, and a total of charges, using the term Fees, must be disclosed for the statement period and calendar year to date, using a format substantially similar to Sample G–18(A) in Appendix G to this part.” Charges imposed as part of the plan include:
(A) Finance charges identified under §1026.4(a) and §1026.4(b).
(B) Charges resulting from the consumer’s failure to use the plan as agreed, except amounts payable for collection activity after default, attorney’s fees whether or not automatically imposed, and post-judgment interest rates permitted by law.
(C) Taxes imposed on the credit transaction by a state or other governmental body, such as documentary stamp taxes on cash advances.
(D) Charges for which the payment, or nonpayment, affect the consumer’s access to the plan, the duration of the plan, the amount of credit extended, the period for which credit is extended, or the timing or method of billing or payment.
(E) Charges imposed for terminating a plan.
(F) Charges for voluntary credit insurance, debt cancellation or debt suspension.

Section 1026.7(b)(6) does not address “start-up fees.”

[hdagnew01]

Sorry, this is just confusing me more. So if we follow 7(b), are you saying we don’t need to do any “start-up fees” on the statement? Or we only need to include fees on the statement that are finance charges?

[jholzknecht]

Apparently, my long answers are longer than you want to read. I will keep it short this time.

No.

No.

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