US Laws, Codes, Statutes & Cases

From the U.S. Code Online via GPO Access
[wais.access.gpo.gov]
[Laws in effect as of January 24, 2002]
[Document not affected by Public Laws enacted between
  January 24, 2002 and December 19, 2002]
[CITE: 15USC1605]

 
                      TITLE 15--COMMERCE AND TRADE
 
                 CHAPTER 41--CONSUMER CREDIT PROTECTION
 
              SUBCHAPTER I--CONSUMER CREDIT COST DISCLOSURE
 
                       Part A--General Provisions
 
Sec. 1605. Determination of finance charge


(a) ``Finance charge'' defined

    Except as otherwise provided in this section, the amount of the 
finance charge in connection with any consumer credit transaction shall 
be determined as the sum of all charges, payable directly or indirectly 
by the person to whom the credit is extended, and imposed directly or 
indirectly by the creditor as an incident to the extension of credit. 
The finance charge does not include charges of a type payable in a 
comparable cash transaction. The finance charge shall not include fees 
and amounts imposed by third party closing agents (including settlement 
agents, attorneys, and escrow and title companies) if the creditor does 
not require the imposition of the charges or the services provided and 
does not retain the charges. Examples of charges which are included in 
the finance charge include any of the following types of charges which 
are applicable:
        (1) Interest, time price differential, and any amount payable 
    under a point, discount, or other system or additional charges.
        (2) Service or carrying charge.
        (3) Loan fee, finder's fee, or similar charge.
        (4) Fee for an investigation or credit report.
        (5) Premium or other charge for any guarantee or insurance 
    protecting the creditor against the obligor's default or other 
    credit loss.
        (6) Borrower-paid mortgage broker fees, including fees paid 
    directly to the broker or the lender (for delivery to the broker) 
    whether such fees are paid in cash or financed.

(b) Life, accident, or health insurance premiums included in finance 
        charge

    Charges or premiums for credit life, accident, or health insurance 
written in connection with any consumer credit transaction shall be 
included in the finance charges unless
        (1) the coverage of the debtor by the insurance is not a factor 
    in the approval by the creditor of the extension of credit, and this 
    fact is clearly disclosed in writing to the person applying for or 
    obtaining the extension of credit; and
        (2) in order to obtain the insurance in connection with the 
    extension of credit, the person to whom the credit is extended must 
    give specific affirmative written indication of his desire to do so 
    after written disclosure to him of the cost thereof.

(c) Property damage and liability insurance premiums included in finance 
        charge

    Charges or premiums for insurance, written in connection with any 
consumer credit transaction, against loss of or damage to property or 
against liability arising out of the ownership or use of property, shall 
be included in the finance charge unless a clear and specific statement 
in writing is furnished by the creditor to the person to whom the credit 
is extended, setting forth the cost of the insurance if obtained from or 
through the creditor, and stating that the person to whom the credit is 
extended may choose the person through which the insurance is to be 
obtained.

(d) Items exempted from computation of finance charge in all credit 
        transactions

    If any of the following items is itemized and disclosed in 
accordance with the regulations of the Board in connection with any 
transaction, then the creditor need not include that item in the 
computation of the finance charge with respect to that transaction:
        (1) Fees and charges prescribed by law which actually are or 
    will be paid to public officials for determining the existence of or 
    for perfecting or releasing or satisfying any security related to 
    the credit transaction.
        (2) The premium payable for any insurance in lieu of perfecting 
    any security interest otherwise required by the creditor in 
    connection with the transaction, if the premium does not exceed the 
    fees and charges described in paragraph (1) which would otherwise be 
    payable.
        (3) Any tax levied on security instruments or on documents 
    evidencing indebtedness if the payment of such taxes is a 
    precondition for recording the instrument securing the evidence of 
    indebtedness.

(e) Items exempted from computation of finance charge in extensions of 
        credit secured by an interest in real property

    The following items, when charged in connection with any extension 
of credit secured by an interest in real property, shall not be included 
in the computation of the finance charge with respect to that 
transaction:
        (1) Fees or premiums for title examination, title insurance, or 
    similar purposes.
        (2) Fees for preparation of loan-related documents.
        (3) Escrows for future payments of taxes and insurance.
        (4) Fees for notarizing deeds and other documents.
        (5) Appraisal fees, including fees related to any pest 
    infestation or flood hazard inspections conducted prior to closing.
        (6) Credit reports.

(f) Tolerances for accuracy

    In connection with credit transactions not under an open end credit 
plan that are secured by real property or a dwelling, the disclosure of 
the finance charge and other disclosures affected by any finance 
charge--
        (1) shall be treated as being accurate for purposes of this 
    subchapter if the amount disclosed as the finance charge--
            (A) does not vary from the actual finance charge by more 
        than $100; or
            (B) is greater than the amount required to be disclosed 
        under this subchapter; and

        (2) shall be treated as being accurate for purposes of section 
    1635 of this title if--
            (A) except as provided in subparagraph (B), the amount 
        disclosed as the finance charge does not vary from the actual 
        finance charge by more than an amount equal to one-half of one 
        percent of the total amount of credit extended; or
            (B) in the case of a transaction, other than a mortgage 
        referred to in section 1602(aa) of this title, which--
                (i) is a refinancing of the principal balance then due 
            and any accrued and unpaid finance charges of a residential 
            mortgage transaction as defined in section 1602(w) of this 
            title, or is any subsequent refinancing of such a 
            transaction; and
                (ii) does not provide any new consolidation or new 
            advance;

        if the amount disclosed as the finance charge does not vary from 
        the actual finance charge by more than an amount equal to one 
        percent of the total amount of credit extended.

(Pub. L. 90-321, title I, Sec. 106, May 29, 1968, 82 Stat. 148; Pub. L. 
96-221, title VI Sec. 606, Mar. 31, 1980, 94 Stat. 170; Pub. L. 104-29, 
Secs. 2(a), (b)(1), (c)-(e), 3(a), Sept. 30, 1995, 109 Stat. 271, 272.)


                               Amendments

    1995--Subsec. (a). Pub. L. 104-29, Sec. 2(a), in introductory 
provisions inserted after second sentence ``The finance charge shall not 
include fees and amounts imposed by third party closing agents 
(including settlement agents, attorneys, and escrow and title companies) 
if the creditor does not require the imposition of the charges or the 
services provided and does not retain the charges.''
    Subsec. (a)(6). Pub. L. 104-29, Sec. 2(b)(1), added par. (6).
    Subsec. (d)(3). Pub. L. 104-29, Sec. 2(c), added par. (3).
    Subsec. (e)(2). Pub. L. 104-29, Sec. 2(d), amended par. (2) 
generally, substituting ``loan-related'' for ``a deed, settlement 
statement, or other''.
    Subsec. (e)(5). Pub. L. 104-29, Sec. 2(e), inserted before period 
``, including fees related to any pest infestation or flood hazard 
inspections conducted prior to closing''.
    Subsec. (f). Pub. L. 104-29, Sec. 3(a), added subsec. (f).
    1980--Subsec. (a). Pub. L. 96-221, Sec. 606(a), inserted provisions 
excluding charges of a type payable in comparable cash transactions and 
indicated that pars. (1) to (5) are examples of charges.
    Subsec. (d). Pub. L. 96-221, Sec. 606(b), struck out pars. (3) and 
(4) setting forth applicability to taxes and any other type of charge, 
respectively.


                    Effective Date of 1995 Amendment

    Section 2(b)(2) of Pub. L. 104-29 provided that: ``The amendment 
made by paragraph (1) [amending this section] shall take effect on the 
earlier of--
        ``(A) 60 days after the date on which the Board of Governors of 
    the Federal Reserve System issues final regulations under paragraph 
    (3) [set out below]; or
        ``(B) the date that is 12 months after the date of the enactment 
    of this Act [Sept. 30, 1995].''


                    Effective Date of 1980 Amendment

    Amendment by Pub. L. 96-221 effective on expiration of two years and 
six months after Mar. 31, 1980, with all regulations, forms, and clauses 
required to be prescribed to be promulgated at least one year prior to 
such effective date, and allowing any creditor to comply with any 
amendments, in accordance with the regulations, forms, and clauses 
prescribed by the Board prior to such effective date, see section 625 of 
Pub. L. 96-221, set out as a note under section 1602 of this title.


                               Regulations

    Section 2(b)(3) of Pub. L. 104-29 provided that: ``The Board of 
Governors of the Federal Reserve System shall promulgate regulations 
implementing the amendment made by paragraph (1) [amending this section] 
by no later than 6 months after the date of the enactment of this Act 
[Sept. 30, 1995].''


          Ensuring That Finance Charges Reflect Cost of Credit

    Section 2(f) of Pub. L. 104-29 provided that:
    ``(1) Report.--
        ``(A) In general.--Not later than 6 months after the date of the 
    enactment of this Act [Sept. 30, 1995], the Board of Governors of 
    the Federal Reserve System shall submit to the Congress a report 
    containing recommendations on any regulatory or statutory changes 
    necessary--
            ``(i) to ensure that finance charges imposed in connection 
        with consumer credit transactions more accurately reflect the 
        cost of providing credit; and
            ``(ii) to address abusive refinancing practices engaged in 
        for the purpose of avoiding rescission.
        ``(B) Report requirements.--In preparing the report under this 
    paragraph, the Board shall--
            ``(i) consider the extent to which it is feasible to include 
        in finance charges all charges payable directly or indirectly by 
        the consumer to whom credit is extended, and imposed directly or 
        indirectly by the creditor as an incident to the extension of 
        credit (especially those charges excluded from finance charges 
        under section 106 of the Truth in Lending Act [15 U.S.C. 1605] 
        as of the date of the enactment of this Act), excepting only 
        those charges which are payable in a comparable cash 
        transaction; and
            ``(ii) consult with and consider the views of affected 
        industries and consumer groups.
    ``(2) Regulations.--The Board of Governors of the Federal Reserve 
System shall prescribe any appropriate regulation in order to effect any 
change included in the report under paragraph (1), and shall publish the 
regulation in the Federal Register before the end of the 1-year period 
beginning on the date of enactment of this Act.''

                  Section Referred to in Other Sections

    This section is referred to in sections 1602, 1607, 1635, 1638, 
1649, 1666f of this title; title 12 section 1735f-7a.