Finance Charge Ins and Outs

Regulation Z's new finance charge rule treats charges imposed by third parties as finance charges when the creditor requires the borrower to use the third party. This brings in many charges and fees that have heretofore been omitted from finance charge calculations. However, this rather sweeping inclusion of fees is not intended to include fees that would be excluded if charged by the creditor (?226.4(c)(7)).

Under the new rule, if the third party settlement agent uses a courier and requires the borrower to pay the fee, the courier fee is a finance charge. It is a finance charge even though the lender did not specifically require the use of the courier. The fact that the third party, whose use was required by the creditor, imposes the fee makes it charge a finance charge.

The same analysis applies to any charge imposed by the third party. However, if the charge was excludable by the creditor, it is still excludable if imposed by the third party. For example, if the third party attorney ordered a survey or a title examination for a mortgage loan and passed the fee for the service to the borrower, the fee would not be included in the finance charge. It retains its excludable status.

Copyright © 1996 Compliance Action. Originally appeared in Compliance Action, Vol. 1, No. 16, 10/96