A file carries a $1,900 origination fee, $640 of prepaid interest, a $525 appraisal the borrower paid for, $1,100 of owner title insurance she chose, and $95 for a credit report.
Correct Answer
C) The $1,900, the $640 and the $95 are finance charges; the other 2 are not
A finance charge is what the consumer pays as an incident of the credit and would not pay in a comparable cash transaction, which catches the origination fee, the prepaid interest and the credit report. An appraisal and owner title insurance are excluded. Other choices: sweeping in all five ignores the exclusions the section sets out; treating only the origination fee as a finance charge drops two that plainly qualify; and picking the appraisal and the owner policy names the two that are excluded. Source: 12 CFR 1026.4(a) and (c)
Why This Is the Correct Answer
A finance charge is what the consumer pays as an incident of the credit and would not pay in a comparable cash transaction, which catches the origination fee, the prepaid interest and the credit report. An appraisal and owner title insurance are excluded. Other choices: sweeping in all five ignores the exclusions the section sets out; treating only the origination fee as a finance charge drops two that plainly qualify; and picking the appraisal and the owner policy names the two that are excluded. Source: 12 CFR 1026.4(a) and (c)
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