B-179659, OCT 10, 1973

B-179659, OCT 10, 1973

INSTRUCTIONS AS TO THE PROPRIETY OF CERTIFYING FOR PAYMENT THE RECLAIM VOUCHER IN THE AMOUNT OF $325 IN FAVOR OF MR. SEYMORE ZIRIN, AN EMPLOYEE OF AEC, FOR RELOCATION EXPENSES INCURRED BY HIM IN THE PURCHASE OF A RESIDENCE IN ARLINGTON HEIGHTS, ILLINOIS.

TO MR. M. L. CONLIN:

REFERENCE IS MADE TO YOUR LETTER OF AUGUST 31, 1973, WITH ENCLOSURES, REQUESTING OUR ADVANCE DECISION AS TO THE PROPRIETY OF CERTIFYING FOR PAYMENT THE RECLAIM VOUCHER IN THE AMOUNT OF $325 IN FAVOR OF MR. SEYMOUR ZIRIN, AN EMPLOYEE OF THE ATOMIC ENERGY COMMISSION FOR RELOCATION EXPENSES INCURRED BY HIM IN THE PURCHASE OF A RESIDENCE IN ARLINGTON HEIGHTS, ILLINOIS.

THE FINANCIAL DISCLOSURE STATEMENT PREPARED UNDER REGULATION Z ISSUED BY THE BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM SHOWS THAT THE EMPLOYEE BORROWED $40,000 FOR THE PURCHASE OF HIS RESIDENCE AND PAID A LOAN SERVICE CHARGE OF 1 PERCENT, OR $400. THE SETTLEMENT STATEMENT AND OTHER INFORMATION PROVIDED INDICATE THAT THE LOAN SERVICE CHARGE WAS MADE UP OF A $75 APPRAISAL FEE AND $325 IN LOAN CHARGES. YOU ALLOWED THE $75 AS BEING EXCLUDABLE FROM THE FINANCE CHARGE AND DISALLOWED $325 ON THE GROUND THAT THIS AMOUNT WAS A FINANCE CHARGE AND THEREFORE NOT REIMBURSABLE UNDER THE PROVISIONS OF REGULATION Z.

SUBSEQUENTLY THE EMPLOYEE OBTAINED A STATEMENT BY THE OLYMPIC SAVINGS AND LOAN ASSOCIATION, THE LENDING INSTITUTION IN THIS CASE, WHICH SHOWS THAT THE $325, REPORTED AS A FINANCE CHARGE AND AN ASSOCIATION LOAN CHARGE, WAS IN FACT A CHARGE FOR LEGAL FEES FOR DRAWING THE DOCUMENTS OF SETTLEMENT AND WAS MADE UP OF THE FOLLOWING SEPARATE CHARGES:

"CLOSING STATEMENTS $125.00

MORTGAGE 80.00

MORTGAGE NOTE 80.00

FEDERAL RESERVE REGULATION Z 40.00

$325.00"

SUBSECTION 4.2D OF OFFICE OF MANAGEMENT AND BUDGET CIRCULAR NO. A-56 WHICH WAS IN EFFECT AT THE DATE OF THE TRANSACTION HERE INVOLVED PROVIDES IN PERTINENT PART AS FOLLOWS:

"*** NOTWITHSTANDING THE ABOVE, NO FEE, COST, CHARGE, OR EXPENSE IS REIMBURSABLE WHICH IS DETERMINED TO BE A PART OF THE FINANCE CHARGE UNDER THE TRUTH IN LENDING ACT, TITLE I, PUBLIC LAW 90-321, AND REGULATION Z ISSUED PURSUANT THERETO BY THE BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM. ***"

THE FOLLOWING GUIDELINES FOR DETERMINING WHETHER A PARTICULAR CHARGE IS EXCLUDABLE EXPENSE OR A PART OF THE FINANCE CHARGE ARE PROVIDED BY REGULATION Z (12 CFR, PART 226.4), ISSUED PURSUANT TO SECTION 106 OF THE TRUTH IN LENDING ACT:

"SEC 226.4 DETERMINATION OF FINANCE CHARGE.

"(A) GENERAL RULE. EXCEPT AS OTHERWISE PROVIDED IN THIS SECTION, THE AMOUNT OF THE FINANCE CHARGE IN CONNECTION WITH ANY TRANSACTION SHALL BE DETERMINED AS THE SUM OF ALL CHARGES, PAYABLE DIRECTLY OR INDIRECTLY BY THE CUSTOMER, AND IMPOSED DIRECTLY OR INDIRECTLY BY THE CREDITOR AS AN INCIDENT TO OR AS A CONDITION OF THE EXTENSION OF CREDIT, WHETHER PAID OR PAYABLE BY THE CUSTOMER, THE SELLER, OR ANY OTHER PERSON ON BEHALF OF THE CUSTOMER TO THE CREDITOR OR TO A THIRD PARTY, INCLUDING ANY OF THE FOLLOWING TYPES OF CHARGES:

"(1) INTEREST, TIME PRICE DIFFERENTIAL, AND ANY AMOUNT PAYABLE UNDER A DISCOUNT OR OTHER SYSTEM OF ADDITIONAL CHARGES.

"(2) SERVICE, TRANSACTION, ACTIVITY, OR CARRYING CHARGE.

"(3) LOAN FEE, POINTS, FINDER'S FEE, OR SIMILAR CHARGE.

"(4) FEE FOR AN APPRAISAL, INVESTIGATION, OR CREDIT REPORT.

"(E) EXCLUDABLE CHARGES, REAL PROPERTY TRANSACTIONS. THE FOLLOWING CHARGES IN CONNECTION WITH ANY REAL PROPERTY TRANSACTION, PROVIDED THEY ARE BONA FIDE, REASONABLE IN AMOUNT, AND NOT FOR THE PURPOSE OF CIRCUMVENTION OR EVASION OF THIS PART, SHALL NOT BE INCLUDED IN THE FINANCE CHARGE WITH RESPECT TO THAT TRANSACTION:

"(2) FEES FOR PREPARATION OF DEEDS, SETTLEMENT STATEMENTS, OR OTHER DOCUMENTS.

"(5) APPRAISAL FEES."

IN THE DECISION B-178454, JUNE 19, 1973, COPY ENCLOSED, WE HELD -

"*** WHERE AN ITEMIZATION OF AMOUNTS INCLUDED IN THE SERVICE CHARGE OR FEE IS FURNISHED, EXCLUDABLE CHARGES AS DEFINED IN SUBSECTION 226.4(E), ABOVE, MAY BE REIMBURSED TO THE EXTENT THAT THEY ARE BONA FIDE, REASONABLE IN AMOUNT AND NOT FOR THE PURPOSE OF CIRCUMVENTING OR EVADING REGULATION Z (12 CFR, PART 226)."

THE ITEMIZATION OF AMOUNTS IN THIS CASE INDICATES THAT THE LOAN SERVICE CHARGE WAS MADE UP OF EXCLUDABLE CHARGES EXCEPT FOR THE CHARGE OF $40 DESIGNATED "FEDERAL RESERVE REGULATION Z" WHICH CHARGE IS TO BE CONSIDERED PART OF THE FINANCE CHARGE. SEE B-175889, JUNE 19, 1972, COPY ENCLOSED.

THE MATERIAL FORWARDED, HOWEVER, INDICATES THAT THE BREAKDOWN OF CHARGES MAY NOT HAVE BEEN BONA FIDE AND THAT THE AMOUNTS CHARGED MAY NOT HAVE BEEN REASONABLE SINCE AN OFFICIAL OF THE LENDING INSTITUTION HAS INDICATED THAT THE BREAKDOWN WAS FURNISHED FOR THE CONVENIENCE OF THE EMPLOYEE AND WAS OF NO IMPORTANCE TO THE INSTITUTION. THEREFORE, WE BELIEVE THE CLAIMANT, IN ORDER TO BE REIMBURSED, MUST SHOW THAT THE ITEMS WHICH COULD OTHERWISE BE ALLOWED WERE BONA FIDE CHARGES BY THE LENDING INSTITUTION FOR THE SERVICES INDICATED AND THAT THOSE CHARGES WERE REASONABLE IN AMOUNT. THIS TEST ON THE PRESENT RECORD HAS NOT BEEN MET.

THE VOUCHER WHICH IS RETURNED HEREWITH IS FOR HANDLING IN ACCORDANCE WITH THE ABOVE.