My institution is throwing around the idea of charging to review private flood insurance policies. I’m concerned this might be a fair lending issue. We do not charge to review NFIP policies nor do we charge to review any other insurance policies, such as hazard insurance. What are your thoughts on this?
The final rule is silent on charging a fee. Since it is not specifically prohibited we believe you can charge a fee for the determination and any subsequent determination that would be necessary. You will need to consider whether this would be included in the finance charge; we believe the safe approach would be to include the charge in the finance charge. As for fair lending, it is always prudent to keep an eye on what could cause disparate impact or be considered disparate treatment. If you are reviewing these other policies and not charging fees that could possibly be an issue. However, the reason banks are considering charging a fee is because the private flood rules are putting a large burden on financial institutions – it is this extra work and burden of making the determinations that you are potentially charging for.
I’d recommend discussing both the fee with your regulator prior to implementation to get a better understanding of their interpretation and how they will view the practices before they come into your bank your next exam.