(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.
(b) Example of finance charge. 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) Debt cancellation fees. Charges or premiums
paid for debt cancellation coverage written in connection with a credit
transaction, whether or not the debt cancellation coverage is insurance
under applicable law.
(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.
(d) Insurance and debt cancellation 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. 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 Sec. 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. Any consumer in the transaction may sign or initial
the request.
(2) Premiums for insurance against loss of
or damage to property, or against liability arising out of the ownership
or use of property,5 may be excluded from the finance charge
if the following conditions are met:
5
This includes single interest insurance if the insurer waives all right
of subrogation against the consumer.
(i) The insurance coverage may be obtained
from a person of the consumer's choice,6 and this fact is disclosed.
6
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 Sec. 226.17(g), and certain closed-end
credit transactions involving an insurance plan that limits the total amount
of indebtedness subject to coverage.
(3) Voluntary debt cancellation fees. (i)
Charges or premiums paid for debt cancellation coverage of the type specified
in paragraph (d)(3)(ii) of this section may be excluded from the finance
charge, whether or not the coverage is insurance, if the following conditions
are met:
(A) The debt cancellation agreement or coverage
is not required by the creditor, and this fact is disclosed in writing;
(B) The fee or premium for the initial term
of coverage is disclosed. 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 Sec. 226.17(g), and certain closed-end credit transactions involving
a debt cancellation agreement that limits the total amount of indebtedness
subject to coverage;
(C) The consumer signs or initials an affirmative
written request for coverage after receiving the disclosures specified
in this paragraph. Any consumer in the transaction may sign or initial
the request.
(ii) Paragraph (d)(3)(i) of this section applies
to fees paid for debt cancellation coverage that provides for cancellation
of all or part of the debtor's liability for amounts exceeding the value
of the collateral securing the obligation, or in the event of the loss
of life, health, or income or in case of accident.
(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.
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