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#188382 - 05/10/04 03:53 PM Are Transfer Fees on OD Lines a Finance Charge?
Anonymous
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We offer a traditional overdraft line of credit linked to a checking account. If the customer overdraws the account the overdraft line automatically advances funds to cover it. When this happens a $5 fee is charged to the overdraft line. If a customer without an overdraft line overdraws his checking account, we will charge $24 to the checking account if the bank pays the overdrawn item.

Is this $5 fee a Finance Charge under Reg Z?

226.4(a)says that a finance charge doesn't include a charge of a type payable in a "comparable cash transaction". In this case, could the $5 fee be considered comparable to the $24 NSF fee we charge when the customer doesn't have an overdraft line?

Section 226.4(b)(2), which shows examples of finance charges to include "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." Our $5 charge doesn't exceed the $25 charge for a similar account without a credit feature, but this section of the Reg refers to charges "imposed on a checking or other transaction account". Does the fact that our $5 fee is charged against the overdraft line, rather than the checking account mean that this section of the regulation won't apply and we must disclose it as a finance charge?

Thanks for sticking it out with such a long post.

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#188383 - 05/10/04 03:56 PM Re: Are Transfer Fees on OD Lines a Finance Charge?
rlcarey Offline
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rlcarey
Joined: Jul 2001
Posts: 83,219
Galveston, TX
IMHO - Yes.
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#188384 - 05/10/04 04:04 PM Re: Are Transfer Fees on OD Lines a Finance Charge?
Dan Persfull Offline
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Dan Persfull
Joined: Aug 2002
Posts: 47,517
Bloomington, IN
FWIW I agree with Randy.

The NSF is supposedly your cost of handling the transaction and there is no "transfer" involved. You are charging the $5 to transfer money from the ODL to the checking, therefore the transfer fee is associated with a credit transaction and would be a FC IMO.
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#188385 - 05/10/04 06:54 PM Re: Are Transfer Fees on OD Lines a Finance Charge?
Susan T Offline
Member
Joined: Jan 2004
Posts: 97
Washington (State)
Ditto... and I don't believe it matters if you charge the fee against the checking or against the OD line. If the fee is generated by the transfer from the line to the checking, it is a finance charge.
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#188386 - 05/11/04 01:55 AM Re: Are Transfer Fees on OD Lines a Finance Charge?
rlcarey Offline
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rlcarey
Joined: Jul 2001
Posts: 83,219
Galveston, TX
Quote:

I don't believe it matters if you charge the fee against the checking or against the OD line.




I disagree - there is a provision in the commentary for charges that are accessing directly to the linked checking account. However, the fees in the original post appear to be assessed directly to the ODL and therefor would be considered a FC, as it would be considered a transaction charge.

Paragraph 4(b)(2).
1. Checking account charges. A checking or transaction account charge imposed in connection with a credit feature is a finance charge under Sec. 226.4(b)(2) to the extent the charge exceeds the charge for a similar account without a credit feature. If a charge for an account with a credit feature does not exceed the charge for an account without a credit feature, the charge is not a finance charge under Sec. 226.4(b)(2). To illustrate:
i. A $5 service charge is imposed on an account with an overdraft line of credit (where the institution has agreed in writing to pay an overdraft), while a $3 service charge is imposed on an account without a credit feature; the $2 difference is a finance charge. (If the difference is not related to account activity, however, it may be excludable as a participation fee. See the commentary to Sec. 226.4(c)(4).)
ii. A $5 service charge is imposed for each item that results in an overdraft on an account with an overdraft line of credit, while a $25 service charge is imposed for paying or returning each item on a similar account without a credit feature; the $5 charge is not a finance charge.
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