As the ancient saying goes: New Year, New Car! (Unless you are Janice, who has had the same car since she was 16). When a member upgrades their vehicle they may choose to purchase (or be required to purchase) GAP insurance and vender single interest (VSI) insurance, and may have to pay for recording or DMV fees. We often get asked if these fees need to be stated on the member’s disclosures and included in the amount financed under Regulation Z. The answer is: it depends. So, buckle up and lets d[r]ive in!
Section 1026.18(b) states the amount financed is calculated by:
“(1) Determining the principal loan amount or the cash price (subtracting any downpayment);
(2) Adding any other amounts that are financed by the creditor and are not part of the finance charge; and
(3) Subtracting any prepaid finance charge.”
A credit union determines the loan amount and adds any other amounts that are financed but are not a part of the finance charge. The official interpretation to 1026.18(b)(2) explains that “fees or other charges that are not part of the finance charge and that are financed rather than paid separately at consummation of the transaction are included in the amount financed.” To be included in the amount financed calculation the fee must be financed by the credit union and not already be a part of the finance charge.
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