(a) Definition. The finance
charge is the cost of consumer credit as a dollar amount. It includes
any charge payable directly or indirectly by the consumer and imposed
directly or indirectly by the creditor as an incident to or a condition
of the extension of credit. It does not include any charge of a type
payable in a comparable cash transaction.
(1) Charges by
third parties. The finance charge includes fees and amounts charged
by someone other than the creditor, unless otherwise excluded under
this section, if the creditor:
(i) Requires the use of a third party
as a condition of or an incident to the extension of credit, even if the consumer
can choose the third party; or
(ii) Retains a portion of the third-party
charge, to the extent of the portion retained.
(2) Special rule;
closing agent charges. Fees charged by a third party that conducts
the loan closing (such as a settlement agent, attorney, or escrow
or title company) are finance charges only if the creditor:
(i) Requires the particular services
for which the consumer is charged;
(ii) Requires the imposition of the charge; or
(iii) Retains a portion of the third-party
charge, to the extent of the portion retained.
(3) Special rule;
mortgage broker fees. Fees charged by a mortgage broker (including
fees paid by the consumer directly to the broker or to the creditor
for delivery to the broker) are finance charges even if the creditor
does not require the consumer to use a mortgage broker and even if
the creditor does not retain any portion of the charge.
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(b) Examples of finance charges. The
finance charge includes the following types of charges, except for
charges specifically excluded by paragraphs (c) through (e) of this
section:
(1) Interest,
time price differential, and any amount payable under an add-on or
discount system of additional charges.
(2) Service, transaction, activity, and carrying charges, including
any charge imposed on a checking or other transaction account (except
a prepaid account as defined in section 1026.61) to the extent that
the charge exceeds the charge for a similar account without a credit
feature.
(3) Points, loan fees,
assumption fees, finder’s fees, and similar charges.
(4) Appraisal, investigation, and credit
report fees.
(5) Premiums or other
charges for any guarantee or insurance protecting the creditor against
the consumer’s default or other credit loss.
(6) Charges imposed on a creditor by another
person for purchasing or accepting a consumer’s obligation, if the
consumer is required to pay the charges in cash, as an addition to
the obligation, or as a deduction from the proceeds of the obligation.
(7) Premiums or other charges for
credit life, accident, health, or loss-of-income insurance, written
in connection with a credit transaction.
(8) Premiums or other charges for insurance
against loss of or damage to property, or against liability arising
out of the ownership or use of property, written in connection with
a credit transaction.
(9) Discounts
for the purpose of inducing payment by a means other than the use
of credit.
(10) Charges or premiums
paid for debt cancellation or debt suspension coverage written in
connection with a credit transaction, whether or not the coverage
is insurance under applicable law.
(11) With regard to a covered separate credit feature and an asset
feature on a prepaid account that are both accessible by a hybrid
prepaid-credit card as defined in section 1026.61:
(i) Any fee or charge described
in paragraphs (b)(1) through (10) of this section imposed on the covered
separate credit feature, whether it is structured as a credit subaccount
of the prepaid account or a separate credit account.
(ii) Any fee or charge imposed on the
asset feature of the prepaid account to the extent that the amount
of the fee or charge exceeds comparable fees or charges imposed on
prepaid accounts in the same prepaid account program that do not have
a covered separate credit feature accessible by a hybrid prepaid-credit
card.
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(c) Charges excluded from the finance charge. The following charges
are not finance charges:
(1) Application fees charged to all applicants for credit, whether
or not credit is actually extended.
(2) Charges for actual unanticipated late payment, for exceeding a credit
limit, or for delinquency, default, or a similar occurrence.
(3) Charges imposed by a financial institution
for paying items that overdraw an account, unless the payment of such
items and the imposition of the charge were previously agreed upon
in writing. This paragraph does not apply to credit offered in connection
with a prepaid account as defined in section 1026.61.
(4) Fees charged for participation in a
credit plan, whether assessed on an annual or other periodic basis.
This paragraph does not apply to a fee to participate in a covered
separate credit feature accessible by a hybrid prepaid-credit card
as defined in section 1026.61, regardless of whether this fee is imposed
on the credit feature or on the asset feature of the prepaid account.
(5) Seller’s points.
(6) Interest forfeited as a result of an
interest reduction required by law on a time deposit used as security
for an extension of credit.
(7) Real-estate related fees. The following
fees in a transaction secured by real property or in a residential
mortgage transaction, if the fees are bona fide and reasonable
in amount:
(i) Fees
for title examination, abstract of title, title insurance, property
survey, and similar purposes.
(ii) Fees for preparing loan-related documents, such as deeds, mortgages,
and reconveyance or settlement documents.
(iii) Notary and credit-report fees.
(iv) Property appraisal fees or
fees for inspections to assess the value or condition of the property
if the service is performed prior to closing, including fees related
to pest-infestation or flood-hazard determinations.
(v) Amounts required to be paid into
escrow or trustee accounts if the amounts would not otherwise be included
in the finance charge.
(8) Discounts offered to induce payment for a purchase by cash, check,
or other means, as provided in section 167(b) of the Act.
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(d) Insurance and debt cancellation and
debt suspension coverage.
(1) Voluntary
credit insurance premiums. Premiums for credit life, accident,
health, or loss-of-income insurance may be excluded from the finance
charge if the following conditions are met:
(i) The insurance coverage is not required
by the creditor, and this fact is disclosed in writing.
(ii) The premium for the initial term
of insurance coverage is disclosed in writing. If the term of insurance
is less than the term of the transaction, the term of insurance also
shall be disclosed. The premium may be disclosed on a unit-cost basis
only in open-end credit transactions, closed-end credit transactions
by mail or telephone under section 1026.17(g), and certain closed-end
credit transactions involving an insurance plan that limits the total
amount of indebtedness subject to coverage.
(iii) The consumer signs or initials
an affirmative written request for the insurance after receiving the
disclosures specified in this paragraph, except as provided in paragraph
(d)(4) of this section. Any consumer in the transaction may sign or
initial the request.
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(2) Property insurance premiums. Premiums
for insurance against loss of or damage to property, or against liability
arising out of the ownership or use of property, including single
interest insurance if the insurer waives all right of subrogation
against the consumer, may be excluded from the finance charge if the
following conditions are met:
(i) The insurance coverage may be obtained
from a person of the consumer’s choice, and this fact is disclosed.
(A creditor may reserve the right to refuse to accept, for reasonable
cause, an insurer offered by the consumer.)
(ii) If the coverage is obtained from
or through the creditor, the premium for the initial term of insurance
coverage shall be disclosed. If the term of insurance is less
than the term of the transaction, the term of insurance shall also
be disclosed. The premium may be disclosed on a unit-cost basis only
in open-end credit transactions, closed-end credit transactions by
mail or telephone under section 1026.17(g), and certain closed-end
credit transactions involving an insurance plan that limits the total
amount of indebtedness subject to coverage.
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(3) Voluntary
debt cancellation or debt suspension fees. Charges or premiums
paid for debt cancellation coverage for amounts exceeding the value
of the collateral securing the obligation or for debt cancellation
or debt suspension coverage in the event of the loss of life, health,
or income or in case of accident may be excluded from the finance
charge, whether or not the coverage is insurance, if the following
conditions are met:
(i) The debt cancellation or debt suspension agreement or coverage
is not required by the creditor, and this fact is disclosed in writing;
(ii) The fee or premium for the
initial term of coverage is disclosed in writing. If the term of coverage
is less than the term of the credit transaction, the term of coverage
also shall be disclosed. The fee or premium may be disclosed on a
unit-cost basis only in open-end credit transactions, closed-end credit
transactions by mail or telephone under section 1026.17(g), and certain
closed-end credit transactions involving a debt cancellation agreement
that limits the total amount of indebtedness subject to coverage;
(iii) The following are disclosed,
as applicable, for debt suspension coverage: That the obligation to
pay loan principal and interest is only suspended, and that interest
will continue to accrue during the period of suspension.
(iv) The consumer signs or initials
an affirmative written request for coverage after receiving the disclosures
specified in this paragraph, except as provided in paragraph (d)(4)
of this section. Any consumer in the transaction may sign or initial
the request.
(4) Telephone purchases. If a consumer purchases
credit insurance or debt cancellation or debt suspension coverage
for an open-end (not home-secured) plan by telephone, the creditor
must make the disclosures under paragraphs (d)(1)(i) and (ii) or (d)(3)(i)
through (iii) of this section, as applicable, orally. In such a case,
the creditor shall:
(i) Maintain evidence that the consumer, after being provided the
disclosures orally, affirmatively elected to purchase the insurance
or coverage; and
(ii) Mail the
disclosures under paragraphs (d)(1)(i) and (ii) or (d)(3)(i) through
(iii) of this section, as applicable, within three business days after
the telephone purchase.
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(e) Certain security interest charges. If itemized
and disclosed, the following charges may be excluded from the finance
charge:
(1) Taxes and fees
prescribed by law that actually are or will be paid to public officials
for determining the existence of or for perfecting, releasing, or
satisfying a security interest.
(2) The premium for insurance in lieu of perfecting a security interest
to the extent that the premium does not exceed the fees described
in paragraph (e)(1) of this section that otherwise would be payable.
(3) Taxes on
security instruments. Any tax levied on security instruments
or on documents evidencing indebtedness if the payment of such taxes
is a requirement for recording the instrument securing the evidence
of indebtedness.
(f) Prohibited
offsets. Interest, dividends, or other income received or to
be received by the consumer on deposits or investments shall not be
deducted in computing the finance charge.
