(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 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.
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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.
(4) Fees charged for participation
in a credit plan, whether assessed on an annual or other periodic
basis.
(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 226.17(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,
5 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,
6 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 226.17(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 226.17(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.
