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.