Banking Interpretations

Banking Law §6-I

April 7, 2005

To:  [                  ]
From: Sharon Cherry
Subject:  Banking Law Section 6-l

Dear [                 ]:

This is in response to your e-mail addressed to Sara Kelsey, Deputy Superintendent and Counsel, regarding Section 6-l of the Banking Law.   You have requested the Department's interpretation of the definition of "points and fees" contained in Section 6-l of the Banking Law.  Specifically, the Section you are asking about, Section 6-l(1)(f)(ii), provides  that "points and fees" means:  All charges for items listed under Section 226.4(c)(7) of Title 12 of the Code of Federal Regulations, as amended from time to time, but only if the lender receives direct or indirect compensation in connection with the charge or the charge is paid to an affiliate of the lender; otherwise, the charges are not included within the meaning of the phrase "points and fees."  12 CFR Section 226.4(c)(7) lists the real estate related fees that the Federal Reserve excludes from the finance charge, if the fees are bona fide and reasonable in amount. 

In its commentary to the above-noted regulation, the Federal Reserve states that the real estate or residential mortgage transaction charges excluded under Section 226.4(c)(7) are those charges imposed solely in connection with the initial decision to grant credit.  The Federal Reserve further provides that the exclusion does not apply to fees for services to be performed periodically during the loan term, regardless of when the fee is collected.   The example given states that a fee for one or more determinations during the loan term of the current tax lien status or flood insurance requirements is a finance charge.

You state that you have been informed by Department personnel that a third party real estate related fee may be excluded from the calculation of points and fees regardless of whether the commentary requires the fee to be included in the finance charge.  That advice is correct.  Section 6-6-1(1)(f)(ii) clearly indicates that charges for items listed under Section 226.4(c)(7) of Title 12 of the Code of Federal Regulations are only "points and fees" if the lender or an affiliate receives compensation in connection with such a charge.  If only a third party unrelated to the lender receives compensation in such case, the item will not be deemed to be "points or fees" under Section 6-1 regardless of what the Federal Reserve's Commentary on the item states.

I trust this is responsive to your inquiry.

Sharon Cherry
Associate Attorney