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Comments Filed on CFPB's Finance Charge Proposal

On November 6, 2012, the Missouri Credit Union Association (MCUA) filed a comment letter with the Consumer Financial Protection Bureau (CFPB). This letter addressed the agency’s proposal to expand the definition of “finance charge” under Regulation Z, Truth-in-Lending Act (TILA). The proposal on the definition of “finance charge” is of key significance to credit unions that have mortgage loan programs because they are concerned that their Regulation Z compliance and training costs will be significantly increased, that they will be subject to additional regulatory requirements that are based on the definition of “finance charge,” and that consumers will be no better able to understand their credit costs than they are today.     

Currently, under Regulation Z, a number of types of costs associated with the extension of credit are excluded from the definition of “finance charge” and the “annual percentage rate,” which is calculated using the finance charge. Under the proposal, the CFPB would include a cost in the “finance charge” if it is “payable directly or indirectly by the consumer” and is “imposed directly or indirectly by the creditor as an incident to the condition of the extension of credit.” Under this approach, many costs that are now excluded would be incorporated into the finance charge and APR for closed-end mortgage loans secured by real property or a dwelling. 

While we agreed that the current approach to finance charge and APR disclosures under Regulation Z is imperfect and very likely limits the ability of consumers to understand the full costs associated with any loan, open- or closed-end, that they shop for or obtain, we strongly  opposed  expanding the definition of the “finance charge.” As our letter pointed out:

  • The CFPB has not provided sufficient evidence that consumers will benefit from the expanded definition of “finance charge.”
  • We question whether the agency’s broader definition of “finance charge” approach will be useful to consumers. 
  • The comment process is insufficient to address the changes to the definition of “finance charge,” given the scope and impact of the CFPB’s approach.