A bank has a product similar to a no-cost product. They also offer a lender credit. This resulted in a negative borrower charge. How would this impact the finance charge noted on the CD? Should this result in a higher "amount financed" or be excluded?


Thank you!

What is a negative borrower charge?

I explained that poorly, sorry. I think I have my answer but was hoping for confirmation. A bank has a similar product to a no-cost loan. There is no application fee and they offered a lender credit as well. Typically the lender credit is to offset the origination charge and referred to as a specific lender credit. However, in this case, there is no origination charge and seems to be more of a general ledger credit because there is nothing to offset. In this case, I believe the credit should not be included in the finance charge calculation.

So there are no closing costs and you are giving the borrower more money than they are borrowing to get a loan from you. Sorry, I am still not following. A lender credit is never a finance charge.

You mention that a lender credit is never a finance charge. With talking to the CFPB previously, they noted that specific lender credits are used in the finance charge calculation but not general lender credits. So I supposed it depends on how you classify the lender credit. Thoughts?

For example, a lender agree to pay the borrower's settlement fee at the title company of $300. On the CD, the settlement fee of $300 would be shown in the Paid by Others column with an (L) designation. The settlement fee, since it is not being paid by the borrower, is not a finance charge. I have no idea what you mean by specific credits are used in the finance charge calculation. As I indicated, a lender credit would never be a finance charge.

Thanks for your help. The CFPB refers to this as a specific lender credit. So yes, I agree the settlement fee would not be included as it is offset also by the specific lender credit. I need to look into this more with regards to my question because I am phrasing this wrong. I appreciate the help!!