Regulation z

Definitions and Finance Charge

Purpose of Reg Z Informed use of consumer credit via required disclosures about terms and cost Consumer credit protections

Scope of Reg Z Applies when four conditions are met: The credit is offered or extended to consumers. The offering or extension of credit is done regularly. The credit is subject to a finance charge or is payable by a written agreement in more than four installments. The credit is primarily for personal, family, or household purposes.

Exemptions Business credit Amounts over $50,000 except when: Secured by real property Secured by a dwelling A private education loan Guaranteed student loans An extension of credit to a participant in an employer-sponsored retirement plan

Business Credit Look at the “primary purpose” of the credit extension Special rules for rental property Organizational credit is always exempt

Key Definitions

Advertisement A commercial message in any medium that promotes, directly or indirectly, a credit transaction.

Business Day A day on which the creditor’s offices are open to the public for carrying on substantially all of its business functions.

Business Day - Rescission All calendar days except Sundays and legal public holidays (not state holidays): Holidays that fall on a Saturday: count the previous Friday Holidays that fall on a Sunday: don’t count any days (even if you’re closed)

Closed-end Credit Any consumer credit other than “open-end credit.”

Consumer & Consumer Credit A consumer is a person to whom consumer credit is offered or extended. For purposes of rescission - any natural person whose ownership interest in his or her principal dwelling is subject to the risk of loss. Consumer Credit: Credit offered or extended to a consumer primarily for personal, family, or household purposes.

Consummation The time that a consumer becomes contractually obligated on a credit transaction.

Credit Card Any card, plate, or other single credit device that may be used from time to time to obtain credit. Does not include: A credit card that accesses a home-equity plan An overdraft line of credit accessed by a debit card

Dwelling A residential structure that contains one to four units, whether or not that structure is attached to real property.

Open-end Credit Consumer credit extended under a plan: Repeated transactions Finance charge Revolving

Prepaid Finance Charge Any finance charge paid separately in cash or by check before or at consummation of a transaction, or withheld from the proceeds of the credit at any time.

Residential Mortgage Transaction A loan secured by the consumer's principal dwelling to finance the acquisition or initial construction of that dwelling: Not limited to first lien transactions Construction loans can be RMTs Multi-purpose loans can be RMTs

Finance charge

Definition The cost of consumer credit as a dollar amount: Includes charges imposed as a condition of the extension of credit. Does not include any charge of a type payable in a comparable cash transaction.

Third party charges The finance charge includes fees and amounts charged by someone other than the creditor, if the creditor: Requires the use of a third party, OR Retains a portion of the third-party charge.

Closing Agent Charges Are finance charges only if the creditor: Requires the particular services for which the consumer is charged. Requires the imposition of the charge. Retains a portion of the third-party charge, to the extent of the portion retained.

Mortgage Broker Fees Always a finance charge

Finance Charges Interest Service, transaction and activity charges Points and loan fees Discounts for inducing payment by means other than credit Appraisal, investigation, and credit report fees (exceptions apply) Insurance premiums (exceptions apply) Loan purchase fees if they are passed on to the consumer

Exclusions Application fees charged to all applicants Late payment fees Overdraft fees not agreed to in writing Participation fees Seller's points (or any other seller paid fees)

Real Estate related fees Title fees Document prep fees Notary and credit-report fees Appraisal fees Escrow amounts

Property Insurance Premiums Are not finances charges if: The applicant can choose their own insurance company and this fact is disclosed. Coverage obtained through the creditor is disclosed.

Insurance and Debt Cancellation and Debt Suspension Coverage Premiums for credit life, accident, health, or loss-of-income insurance may be excluded from the finance charge if: Coverage is not required (and that fact is disclosed) The premium for the initial term of insurance coverage is disclosed The consumer signs or initials an affirmative written request for the insurance after receiving disclosures

Voluntary Debt Cancellation or Debt Suspension Fees Charges or premiums paid for debt cancellation coverage may be excluded from the finance charge if: Coverage is not required and this fact is disclosed The fee or premium for the initial term of coverage is disclosed For debt suspension coverage: That the obligation to pay loan principal and interest is only suspended The consumer signs or initials an affirmative written request for coverage after receiving the disclosures

Security Interest Charges Are not finances charges if they are itemized and disclosed.