Is over estimation of LEC’s acceptable?

There are new tolerances that come into effect with the new rules. The way the rules are designed is very similar to what you have for the RESPA GFE. There is a good faith standard, meaning you (or the broker on your behalf) have to provide the consumer with good faith estimates, based on the best information reasonably available for any settlement charges. Then there are tolerance rules that are going to be in place for those charges. There is an expanded category of zero tolerance charges, meaning that, under the rules, if what the consumer ultimately pays is higher than what was on the estimate, then the estimate was deemed to not be in “good faith” and you must cure a tolerance violation unless there was a changed circumstance or other event that allows you to redisclose it. There’s another category called the 10% category where you’ve permitted shopping for a service and it’s not being paid to an affiliate of the creditor or broker. This also is very similar to what you have under RESPA. Then there are other types of charges, like prepaid interest that are not subject to tolerance at all. But generally the baseline for “good faith” is that you did not charge more than you stated on the estimate.

However, I wouldn’t bank on the fact that “good faith” relies on charging the consumer more than the estimate as a license to intentionally overestimate. There are business reasons and legal reasons why you still wouldn’t want to do that. The business reasons are obvious: you’re probably putting yourself at a competitive disadvantage if you are overestimating fees and making the loan look more expensive than it is. That’s a practical concern. The legal concern is that, even though the good faith standard turns on charging the consumer more than the estimate, there also is still a best information reasonably available standard. This means each disclosure that is made has to be made according to the best information reasonably available. So if what you or your third party LO is doing is intentionally inflating estimates to get around potential tolerance violations, then those disclosures wouldn’t be made according to the best information reasonably available. Even though they may end up protecting you from a tolerance violation, you still could still violate TILA.

Answered By: Andy Arculin