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Closed-end Indirect Lending Auto Loans

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Question: 
A base rate of 9.50% was used for a closed-end Indirect Lending Auto loan. The amount financed in the Schumer box is disclosed as $20,230.55. The note reflects a Loan Processing fee (Prepaid Finance Charge) of $100, but this is not included in the amount financed. The APR in the Schumer box shows 9.68% due to the $100 processing fee. We book the loan on our data processing system as $23,330.55 (amount financed plus the $100) at the base rate of 9.50%. Are we in compliance? If not, is there a tolerance level?
Answer: 

The amount financed and the loan amount will not be the same when prepaid finance charges are involved. Prepaid finance charges are subtracted from the loan amount to arrive at the amount financed for Reg Z purposes. For starters, review 226.18(b).

First published on BankersOnline.com 10/23/06

First published on 10/23/2006

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