Determining and computing the maximum allowable finance charge applicable to a consumer loan is not always as easy as it may first seem. After all, you turn to the state code, find your code section and apply the math to the facts. Easy, right?

Well, in many states, finding the right code section is often a chore. Available rates of charge may be spread throughout several different code sections and may bear several different names. For example, in Alabama finance charge may be called “interest,” “simple interest,” pre-computed interest,” “interest surcharge,” “points,” “account maintenance fee,” installment account handling charge,” acquisition charge,” or “closing fee”—even “time-price differential.” And, once you determine that you have the right code section, then you must make certain that the type of loan may bear the type of charge that you have located.

Then, what about the various and ever-present exceptions to the rule? Might the type or purpose of the loan or the loan amount, negate your ability to use the statute you think should apply?

And, what about federal law? Might there be an applicable federal law or regulation that impacts the available rate of charge under state law?

Finally, there is the very nebulous “fee” that may not be part of or paid in a cash transaction but is charged to a debtor in a credit transaction. Isn’t that a finance charge? Certainly, under the federal Truth-in-Lending Act it would be, and many states parrot the definition of “finance charge” under that federal law in determining what charges are or are not finance charge under state law. 

I am no longer surprised that it remains difficult for creditors and lawyers to determine how to determine and compute finance charge.

Please Note: This is the two hundred-fifteenth blog in a series of Back to Basics blogs, in which relevant and resourceful information can be easily accessed by clicking Dentons - Consumer Finance Report.