Q: What happens to the sum of estimated charges if the consumer is permitted to shop and chooses his or her own service provider?
A: Where a consumer chooses a third-party service provider that is not on the creditor’s written list of service providers, the amount that may be charged for the service is not limited. (§ 1026.19(e)(3)(iii)). See section 7.3 above, describing charges subject to no tolerance limitation. When this occurs for a service that otherwise would be included in the 10% cumulative tolerance category, the charge is removed from consideration for purposes of determining the 10% tolerance level. (Comment 19(e)(3)(ii)-3)
Remember, if the creditor permits the consumer to shop, based on the facts and circumstances, for a required settlement service but the consumer either does not select a settlement service provider, chooses a settlement service provider identified by the creditor on the written list of service providers, or the creditor fails to provide the written list of service providers, then the amount charged is included in the sum of all such third-party charges paid by the consumer, and also is subject to the 10% cumulative tolerance. However, if the charge is paid to the creditor or an affiliate, it is subject to the zero tolerance standard. (Comment 19(e)(3)(ii)-3 and -6, and 19(e)(3)(iii)-2)
The TILA-RESPA Rule states that charges for property taxes and other charges paid to third-party service providers for services not required by the creditor, even those paid to affiliates of the creditor, are “variations permitted for certain charges” or charges that are not subject to a tolerance limitation so long as they are based on the best information reasonably available at the time of disclosure and they are bona fide charges. (§ 1026.19(e)(3)(iii)(E); Comments 19(e)(3)(iii)-3 and -4). For example, owner’s title insurance that is not required by the creditor will be a variation permitted charge that is not subject to tolerance as long as it is disclosed as optional.