QUESTION
We are a lender that originated a HOEPA loan. We were asked
if we could make a payment to a contractor under a home improvement contract
from HOEPA proceeds. Is that permissible?
ANSWER
A creditor may not pay a contractor under a home improvement
contract from the proceeds of a HOEPA loan, other than:
1. By
an instrument payable to the consumer or jointly to the consumer and the
contractor (and if there are multiple consumers who are primarily liable each
must be named as payee); or
2. At
the election of the consumer, through a third-party escrow agent in accordance
with the terms established in a written agreement signed by the consumer, the
creditor, and the contractor prior to disbursement. [12 CFR § 226.34(a)(I); 12
CFR Supp. I to part 226 – Official Staff Commentary §226.34(a)(I)(i)-I]
Jonathan Foxx
President & Managing Director
Lenders Compliance Group
