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Sale of Extended Warranty Coverage - Fin Chg?

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Question: 
This is a Lending and Compliance issue. We are a State Bank and Member of the Fed. We are in the process of beginning to offer a Automobile Extended Warranty Program. We have cleared the State, and are attempting to work through the Fed. The plan has been approved. However, we are having a disclosure problem. In my research, and information from the Warranty Company indicates that nobody is disclosing the upcharge on the contract as an Additional Finance Charge, which the Fed is indicating we need to do. The upcharge is $200.00 per contract, which really distorts the APR, if you disclose it as an additional finance charge. This is not an insurance product, but the product is insured. Any ideas on where to look and point the Fed to avoid having to disclose this as an additional finance charge?
Answer: 

Reg. Z's Official Staff Commentary to 226.18(c)(1)(iii).

2. Charges added to amounts paid to others. A sum is sometimes added to the amount of a fee charged to a consumer for a service provided by a third party (such as for an extended warranty or a service contract) that is payable in the same amount in comparable cash and credit transactions. In the credit transaction, the amount is retained by the creditor. Given the flexibility permitted in meeting the requirements of the amount financed itemization (see the commentary to Section 226.18(c)), the creditor in such cases may reflect that the creditor has retained a portion of the amount paid to others. For example, the creditor could add to the category "amount paid to others" language such as "(we may be retaining a portion of this amount)."

First published on BankersOnline.com 11/21/2005

First published on 11/21/2005

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