15 USC 1605: Finance Charge Inclusions, Exclusions & Remedies

Under 15 U.S.C. 1605, the finance charge is the total dollar cost of consumer credit: every fee the lender imposes on you as a condition of extending the loan. The statute draws one clean line. If the cost exists because you are borrowing, it goes in. If the same cost would appear in an all-cash version of the transaction, it stays out. That single number then feeds the Annual Percentage Rate the lender has to disclose, which is why misclassifying a fee is not a rounding problem but a liability problem.

The Condition-of-Credit Test

The statute’s general rule is sweeping. Any charge payable by you, imposed directly or indirectly by the creditor as an incident to or condition of the extension of credit, is part of the finance charge.¹ The list of specific examples that follows in the statute is illustrative, not exhaustive. When a fee is not on the list, the question is still the same one: does the lender require it because you are borrowing?

The rules run through the Truth in Lending Act and Regulation Z, so they reach mortgages, auto loans, credit cards, and personal loans made for personal, family, or household purposes. Business loans, commercial credit, and non-owner-occupied rental property financing sit outside TILA, and the finance-charge rules do not apply to them.²

Charges That Must Be Included

Interest and Points

Interest is the obvious piece. Every dollar of interest over the life of the loan, fixed or variable, is a finance charge. Discount points paid at closing to buy down the rate go in at full face value: one point on a $300,000 mortgage is $3,000 of finance charge, even though you pay it upfront.¹ Prepaid interest counts too. When you close mid-month, the per-diem interest the lender collects to bridge to your first full payment period is a prepaid finance charge.³

Origination, Processing, and Service Fees

Loan origination fees, processing fees, underwriting fees, and similar service charges are finance charges when the lender requires them. Mortgage origination fees commonly run 0.5% to 1% of the loan amount. A credit card balance-transfer fee of 3% to 5% falls in the same category, and so does a finder’s fee for arranging credit.⁴

Mortgage Broker Fees

Broker fees are always finance charges. It does not matter whether you pay the broker directly or the lender pays the broker out of your loan proceeds, and it does not matter whether the lender required you to use a broker at all.² At 1% to 2% of loan amount, leaving them out would meaningfully understate the disclosed cost.

Credit Report and Investigation Fees

Fees the lender charges for pulling a credit report or running a credit investigation are finance charges under the general rule.¹ Real estate loans get a separate exclusion for this same fee, discussed below.

Required Insurance

If the lender requires insurance that protects its interest in the loan, the premium is a finance charge. Credit life and credit disability policies are the classic examples. The word doing the work is “required.” When the lender conditions approval on the coverage, or refuses to let you shop for a different provider, the premium goes in.¹ Private mortgage insurance, standard on conventional loans with less than 20% down, follows the same logic.⁵

When Third-Party Fees Get Pulled In

A fee charged by someone other than the lender still counts as a finance charge in two situations. The lender required you to use that third-party service as a condition of the loan, even if you chose the specific provider. Or the lender keeps a portion of what the third party collected, in which case the retained portion is a finance charge.²

Closing agents such as settlement companies, title companies, and escrow officers are treated slightly differently. Their fees become finance charges only if the lender specifically required the service, required the charge, or kept a cut. Many closing-agent charges would appear in any property transfer and therefore stay out.

Charges Excluded from the Finance Charge

Voluntary Insurance

Insurance premiums stay out when two things both happen: the lender discloses in writing that the coverage is not a factor in the credit decision, and you sign a separate written statement, after seeing the cost, saying you want it.¹ Telling you the policy is optional is not enough on its own. Debt-protection plans offered on credit card accounts work under the same two-part test.

Late Fees and Default Penalties

Charges for missing a payment penalize you for breaking the terms of the loan, not for entering into it, so they are not finance charges. Credit card late fees currently sit at roughly $30 for a first missed payment and $41 for a repeat within six billing cycles, adjusted annually. A CFPB rule that would have capped these fees at $8 was vacated by a federal court in April 2025, so the prior framework remains in effect. Mortgage late fees are usually a percentage of the overdue amount. Lenders still have to disclose late-fee terms, just separately from the finance charge.

Government-Imposed Fees

Taxes and charges imposed by a government entity are excluded. Recording fees paid to the county to register a mortgage, transfer taxes on a real estate sale, and similar governmental charges exist because the government requires them, not the lender, and would appear in a cash purchase as well.

Seller’s Points

Points paid by a property seller to the lender to help secure financing for the buyer are not finance charges, even if the seller recovers the money through a higher sale price.⁶

Special Exclusions for Real Estate Loans

Loans secured by real property get their own carve-outs in 15 U.S.C. 1605(e), because real estate closings carry costs that would exist whether you financed the purchase or paid cash. Excluded from the finance charge on a real-estate-secured loan:¹

Fees for title examination, title insurance, and similar title services.
Charges for preparing the deed, note, settlement statement, and other loan documents.
Amounts placed in escrow at closing for future property taxes and homeowner’s insurance.
Notary charges.
Appraisal fees and any pest-infestation or flood-hazard inspection fees.
The credit report fee, which the general rule would otherwise pull in.

The exclusion holds only when the charges are genuine and reasonable. A lender who inflates an appraisal fee well beyond the market rate cannot rely on the carve-out to keep the excess out of the finance charge.

How Close the Disclosed Number Has to Be

Small errors do not automatically create liability. For a loan secured by real property or a dwelling, the disclosed finance charge is treated as accurate if it understates the actual amount by no more than $100. Overstatements are always considered accurate because they cut in your favor.¹ For other consumer loans the tolerances tighten: $5 in either direction when the amount financed is $1,000 or less, and $10 above that.³ Miss those windows and the disclosure is inaccurate.

What Happens When a Lender Gets It Wrong

TILA liability does not require proof that the lender meant to deceive you. The error itself is enough.

Statutory Damages

On a closed-end loan secured by real property or a dwelling, individual statutory damages run from $400 to $4,000. On open-end credit not secured by real property, such as an ordinary credit card, the range is $500 to $5,000. Class-action recoveries are capped at the lesser of $1,000,000 or 1% of the lender’s net worth.⁷

Rescission on Home-Secured Loans

For a loan secured by your primary home other than a first-purchase mortgage, a disclosure failure can give you the right to unwind the transaction. The normal three-business-day rescission window in 15 U.S.C. 1635 stretches to three years when the lender never delivered accurate disclosures. Rescission voids the lender’s security interest, and you owe no finance charges.⁸

The Bona Fide Error Defense

A lender can escape liability by showing, by a preponderance of the evidence, that the violation was unintentional and resulted from a genuine error despite procedures reasonably designed to prevent it. Clerical mistakes, calculation errors, computer malfunctions, and printing problems qualify. A mistake of legal judgment does not. A lender who wrongly concluded that a particular fee sat outside the finance charge cannot call that a bona fide error.⁷

Deadlines

You have one year from the violation to file an affirmative TILA suit. After that year runs, you can still raise the violation as a defense if the lender sues you to collect the debt, but you cannot bring your own claim. A three-year period applies to certain high-cost mortgage violations.⁷ The rescission remedy has its own three-year outer limit under 15 U.S.C. 1635, running from the closing date of the loan.⁸

1
Office of the Law Revision Counsel. 15 USC 1605 – Determination of Finance Charge
2
eCFR. 12 CFR 1026.4 – Finance Charge
3
Consumer Financial Protection Bureau. 12 CFR 1026.18 – Content of Disclosures
4
Consumer Financial Protection Bureau. What Are Mortgage Origination Services? What Is an Origination Fee?
5
Consumer Financial Protection Bureau. What Is Private Mortgage Insurance?
6
eCFR. 12 CFR Part 226 – Truth in Lending (Regulation Z)
7
Office of the Law Revision Counsel. 15 USC 1640 – Civil Liability
8
Office of the Law Revision Counsel. 15 USC 1635 – Right of Rescission as to Certain Transactions