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Truth in Lending: 3.7.5.1 General

Generally, “points,”406 loan fees,407 assumption fees,408 finder’s fees, and similar charges are finance charges.409 This is consistent with the general definition of finance charge because these charges are imposed by the creditor as an incident to or as a condition of the extension of credit.

Truth in Lending: 3.7.5.2 Exception for Seller’s Points

The exception to the otherwise absolute and unambiguous rule that points are finance charges is the case of “seller’s points,” which are excluded from the scope of Regulation Z’s definition of finance charges.415 Seller’s points are charges imposed by the creditor on the non-creditor seller for providing credit (or credit on certain terms) to the buyer.416 For example, a bank may be willing to give a mortgage loan to a consumer buying a house for $25,000 only if the seller pays the bank two

Truth in Lending: 3.7.1 General

As § 3.2.4, supra, discusses, TILA and Regulation Z create a road map for analyzing any given charge to determine whether it should be considered a finance charge.295 Following the general definition,296 there is a nonexclusive list of examples.

Truth in Lending: 3.7.11.1 General Rule

Generally, if a creditor offers any discount to a consumer to induce the consumer not to pay by credit, the amount of that discount is considered a finance charge.456 For example, if the price of a piece of land is $9,000 if paid in cash or $10,000 if financed, the $1,000 difference is a finance charge for credit customers.457 In the car dealer rebate program scenario, the dealer may offer a rebate to customers who pay in cash or offer a lower interest rate to those who finance the sale.

Truth in Lending: 3.8.2 Prepaid Finance Charges

Prepaid finance charges are part of the total finance charge that must be disclosed. The term prepaid finance charge is an umbrella term for “any finance charge paid separately in cash or by check before or at consummation of a transaction, or withheld from the proceeds of the credit at any time.”496 Consequently, prepaid finance charges are simply a subset of the finance charges imposed by the creditor.

Truth in Lending: 3.8.4 Calculating the Amount Financed

Regulation Z’s instructions for calculating the amount financed can make one yearn for the clarity of Alice in Wonderland. To calculate the amount financed, Regulation Z provides as follows:516

Step One:

determine the principal of loan, or, in a sale, the cash price less the down payment

Step Two:

Truth in Lending: 3.9.1 Overview

When it comes to accuracy in calculating the full cost of credit, what TILA giveth, TILA also taketh away. Even if a charge is specifically listed as a finance charge example,535 the charge may be subject to one (or more) of TILA’s exclusionary rules.536

Truth in Lending: 3.9.2 Application Fees

The official interpretations define an application fee as a charge to recover the costs associated with processing applications for credit.542 According to the official interpretations, this fee could cover costs of services, such as credit reports, credit investigations, and appraisals, even though such costs would otherwise be included in the finance charge.543

Truth in Lending: 3.9.3.1 General

Charges for actual unanticipated late payment, for exceeding a credit limit, or for delinquency, default,549 or a similar occurrence550 may be excluded from the finance charge.551 These fees are distinguished from finance charges because finance charges are actual and unavoidable.552

Truth in Lending: 3.9.3.2 Over-the-Limit Fees

Over-the-limit fees are a major source of revenue for many credit card issuers, and the Comptroller of the Currency has termed them “interest” under the National Bank Act, the law controlling national banks.555 Yet Regulation Z excludes over-the-limit charges from its definition of “finance charge” under the Truth in Lending Act.556

Truth in Lending: 3.9.3.3 “Courtesy” Overdraft Services Fees

So-called “courtesy” overdraft services are a form of disguised high-cost credit offered by banks and credit unions.559 Separate from explicit overdraft lines of credit—through these overdraft services—financial institutions offer short-term credit with fees that amount to triple-digit rates. When the financial institution covers an overdraft, the bank repays itself by deducting the amount of the overdraft plus a hefty fee, often up to $35, by setting off the consumer’s next deposit.

Truth in Lending: 3.9.4.2.1 McCarran-Ferguson Act

The federal McCarran-Ferguson Act596 leaves the “business of insurance” to state regulation and bars substantive federal regulation of insurance. However, TILA’s disclosure requirements do not rise to the level of substantive regulation of either the sale of insurance or the cost of insurance under the McCarran-Ferguson Act and so are not barred.597

Truth in Lending: 3.9.4.3.1 General description

Credit insurance is a form of insurance offered in connection with a loan where the policy terms are specifically related to the loan, and the creditor or the credit account is the beneficiary.607 Creditors must include charges for credit life, credit accident, credit health, or credit loss-of-income insurance in the finance charge if the insurance is sold in connection with a credit transaction, unless the transaction meets several conditions described below.608 In theory, the insurance pay

Truth in Lending: 3.9.4.4.1 Overview

Where credit insurance is legal,619 premiums and other costs for credit insurance may be excluded from the finance charge only if the following conditions are met:

Truth in Lending: 3.9.4.4.2 Insurance “written in connection with a credit transaction”

Insurance premiums are included in the finance charge only when the policy is “written in connection with a credit transaction.”630 Implicit in the official interpretations is the suggestion that “in connection with” should be interpreted to encompass insurance purchased contemporaneously for use in that transaction.631 Fees for debt cancellation coverage are practically per se written in connection with the credit.632 In general, if a premiu