Some time ago, I published a blog challenging readers to identify when charges in connection with consumer credit transactions are or are not Finance Charges. See Dentons - Back to Basics, Continued—what Do You Mean That Fee Is a Finance Charge?!? . While most of the challenge questions were easily answered, some answers were not so readily apparent. Today’s blog is based on one simple question: “When is a charge not a Finance Charge?” I do offer some guidance.
The following charges are always included in Finance Charge:
- Origination fee
- Credit guaranty insurance
The following charges are never included in Finance Charge:
- Charges payable in a comparable cash transaction
- Late fees
- Discount offered by a seller to induce payment by cash
- Charges absorbed by the creditor as a cost of doing business.
Then, there are fees that are included in the Finance Charge unless certain conditions are met:
- Premiums for credit life, disability, or unemployment insurance
- Debt cancellation fees
- Credit property insurance
- Security interest charges or non-filing insurance in lieu thereof
- Charges imposed by third parties
With respect to this last listing, generally, these charges may be excluded from the computation of the Finance Charge if (i) disclosed to the consumer as voluntary—i.e., not required by the creditor, (ii) the terms are clearly disclosed, and (iii) the charges are authorized by the consumer. Credit property insurance may generally be required and excluded from Finance Charge; but the consumer must be given the right to provide his or her own policy to protect the interests of the creditor.
While this stuff may seem pretty basic, I remain gob-smacked by how many of us cannot tell the difference.