B-176775, OCT 25, 1972

B-176775: Oct 25, 1972

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REIMBURSEMENT OF A "SERVICE CHARGE" LEVIED BY A MORTGAGEE FOR "OVERHEAD EXPENSES IN OPERATING A MORTGAGE LENDING SERVICE" AND OF A LOAN APPLICATION FEE IS PRECLUDED BY OMB CIRCULAR NO. SINCE THESE EXPENSES ARE CHARGES INCIDENT TO THE EXTENSION OF CREDIT WITHIN THE MEANING OF SECTION 106(A) OF THE TRUTH IN LENDING ACT. LOUISE MCMILLAN: REFERENCE IS MADE TO YOUR LETTER DATED AUGUST 3. BENTON WAS AUTHORIZED A CHANGE OF OFFICIAL DUTY STATION FROM GREENVILLE. WHICH WAS EFFECTIVE ON MARCH 13. BENTON HAS SOUGHT REIMBURSEMENT ARE TWO ITEMS WHICH YOU HAVE INDICATED A QUESTION EXISTS RELATIVE TO THE PROPRIETY OF REIMBURSEMENT. OR EXPENSE IS REIMBURSABLE WHICH IS DETERMINED TO BE A PART OF THE FINANCE CHARGE UNDER THE TRUTH IN LENDING ACT.

B-176775, OCT 25, 1972

CIVILIAN PERSONNEL - REAL ESTATE EXPENSES - SERVICE CHARGES - LOAN APPLICATION FEES DECISION DENYING CERTIFICATION FOR PAYMENT OF A VOUCHER IN FAVOR OF DONALD E. BENTON, AN EMPLOYEE OF IRS, FOR REIMBURSEMENT OF CERTAIN REAL ESTATE EXPENSES INCURRED AS A RESULT OF THE PURCHASE OF A NEW HOME INCIDENT TO A CHANGE OF STATION FROM GREENVILLE, MISS., TO ATLANTA, GA. REIMBURSEMENT OF A "SERVICE CHARGE" LEVIED BY A MORTGAGEE FOR "OVERHEAD EXPENSES IN OPERATING A MORTGAGE LENDING SERVICE" AND OF A LOAN APPLICATION FEE IS PRECLUDED BY OMB CIRCULAR NO. A-56, SECTION 4.2D, SINCE THESE EXPENSES ARE CHARGES INCIDENT TO THE EXTENSION OF CREDIT WITHIN THE MEANING OF SECTION 106(A) OF THE TRUTH IN LENDING ACT.

TO MS. LOUISE MCMILLAN:

REFERENCE IS MADE TO YOUR LETTER DATED AUGUST 3, 1972, WITH ENCLOSURES, REFERENCE ADFF:SB, WHICH REQUESTS OUR DECISION AS TO WHETHER TWO ITEMS INCLUDED IN THE ENCLOSED VOUCHER IN THE AMOUNT OF $787.79, IN FAVOR OF MR. DONALD E. BENTON, AN EMPLOYEE OF THE INTERNAL REVENUE SERVICE, MAY BE CERTIFIED FOR PAYMENT UNDER THE CIRCUMSTANCES HEREINAFTER DESCRIBED.

THE RECORD INDICATES THAT MR. BENTON WAS AUTHORIZED A CHANGE OF OFFICIAL DUTY STATION FROM GREENVILLE, MISSISSIPPI, TO ATLANTA, GEORGIA, WHICH WAS EFFECTIVE ON MARCH 13, 1972. INCIDENT THERETO, HE INCURRED CERTAIN REAL ESTATE EXPENSES AS A RESULT OF THE PURCHASE OF A HOME AT THE NEW DUTY STATION. INCLUDED IN THOSE CHARGES FOR WHICH MR. BENTON HAS SOUGHT REIMBURSEMENT ARE TWO ITEMS WHICH YOU HAVE INDICATED A QUESTION EXISTS RELATIVE TO THE PROPRIETY OF REIMBURSEMENT. THE ITEMS, ONE FOR $288 AND ONE FOR $50 REPRESENT THE "SERVICE CHARGE" LEVIED BY MR. BENTON'S MORTGAGEE FOR "OVERHEAD EXPENSES IN OPERATING A MORTGAGE LENDING SERVICE" AND THE OTHER A LOAN APPLICATION FEE, RESPECTIVELY.

SECTION 4.2D OF OFFICE OF MANAGEMENT AND BUDGET CIRCULAR NO. A-56, REVISED AUGUST 17, 1971, STATES IN PERTINENT PART:

"*** 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. ***"

UNDER SUCH PROVISION WHENEVER AN ITEM OF EXPENSE INCIDENT TO A REAL ESTATE TRANSACTION CONSTITUTES A FINANCE CHARGE WITHIN THE CONTEMPLATION OF REGULATION Z REIMBURSEMENT THEREFOR IS PRECLUDED. SECTION 106 OF THE TRUTH IN LENDING ACT IS IN PART AS FOLLOWS.

"(A) EXCEPT AS OTHERWISE PROVIDED IN THIS SECTION, THE AMOUNT OF THE FINANCE CHARGE IN CONNECTION WITH ANY CONSUMER CREDIT TRANSACTION SHALL BE DETERMINED AS THE SUM OF ALL CHARGES, PAYABLE DIRECTLY OR INDIRECTLY BY THE PERSON TO WHOM THE CREDIT IS EXTENDED, AND IMPOSED DIRECTLY OR INDIRECTLY BY THE CREDITOR AS AN INCIDENT TO THE EXTENSION OF CREDIT, INCLUDING ANY OF THE FOLLOWING TYPES OF CHARGES WHICH ARE APPLICABLE:

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

"(2) SERVICE OR CARRYING CHARGE.

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

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

"(5) PREMIUM OR OTHER CHARGE FOR ANY GUARANTEE OR INSURANCE PROTECTING THE CREDITOR AGAINST THE OBLIGOR'S DEFAULT OR OTHER CREDIT LOSS.

"(E) THE FOLLOWING ITEMS, WHEN CHARGED IN CONNECTION WITH ANY EXTENSION OF CREDIT SECURED BY AN INTEREST IN REAL PROPERTY, SHALL NOT BE INCLUDED IN THE COMPUTATION OF THE FINANCE CHARGE WITH RESPECT TO THAT TRANSACTION:

"(1) FEES OR PREMIUMS FOR TITLE EXAMINATION, TITLE INSURANCE, OR SIMILAR PURPOSES.

"(2) FEES FOR PREPARATION OF A DEED, SETTLEMENT STATEMENT, OR OTHER DOCUMENTS.

"(3) ESCROWS FOR FUTURE PAYMENTS OF TAXES AND INSURANCE.

"(4) FEES FOR NOTARIZING DEEDS AND OTHER DOCUMENTS.

"(5) APPRAISAL FEES.

"(6) CREDIT REPORTS."

REGULATION Z (12 CFR, PART 226) WAS PROMULGATED BY THE BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM PURSUANT TO THE TRUTH IN LENDING ACT, AND SETS FORTH THE FOREGOING IN SUBSTANTIALLY THE SAME FORM.

BOTH OF THE ITEMS HERE INVOLVED RELATE TO THE APPLICATION, PROCESSING AND SERVICING OF MR. BENTON'S LOAN AND ARE CLEARLY CHARGES INCIDENT TO THE EXTENSION OF CREDIT WITHIN SECTION 106(A) OF THE TRUTH IN LENDING ACT. SINCE THEY DO NOT COME WITHIN THE ITEMS EXCLUDED UNDER SECTION 106(E) OF THE ACT, REIMBURSEMENT THEREOF IS PRECLUDED. SEE B-171056, NOVEMBER 27, 1970; B-173814, OCTOBER 21, 1971, AND B-175889, JUNE 19, 1972, COPIES ENCLOSED. THEREFORE, THE ITEMS CLAIMED MAY NOT BE ALLOWED.

THE VOUCHER IS RETURNED HEREWITH FOR PROCESSING IN ACCORDANCE WITH THE FOREGOING.

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