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 a lender imposes on you as a condition of extending the loan. The test is simple in principle. If the charge exists because you are borrowing, it belongs in the finance charge. If the same charge would appear in an all-cash deal, it stays out. That figure then drives the Annual Percentage Rate the lender must disclose, which is why mistakes carry real consequences.

What Counts as a Finance Charge

The statute’s general rule sweeps broadly: any charge payable by you and imposed directly or indirectly by the creditor as an incident to the extension of credit is part of the finance charge.¹ The statute then names specific examples so the common costs are not left to argument.

Interest and Points

Interest is the obvious piece. Fixed or variable, every dollar of interest paid over the life of the loan is a finance charge. Discount points, which buy down the rate at closing, count the same way. A single point on a $300,000 mortgage costs $3,000, and the full amount goes into the finance charge even though you pay it upfront.¹

Prepaid or “interim” interest counts too. If you close on a mortgage mid-month, the per-diem interest collected to cover the days before your first full payment period is a prepaid finance charge.²

Origination, Service, and Finder’s Fees

Origination fees, processing fees, underwriting fees, and similar service charges all qualify when the lender requires them to make the loan. Mortgage origination fees commonly run 0.5% to 1% of the loan amount. Credit card balance-transfer fees of 3% to 5% fall into the same bucket.³ Finder’s fees for locating or arranging credit also count.¹

Mortgage Broker Fees

Mortgage broker fees are always finance charges, with no exceptions. It does not matter whether you pay the broker directly or through the lender, and it does not matter whether the lender required you to use a broker in the first place.⁴ Broker fees frequently reach 1% to 2% of the loan amount.

Credit Report Fees

Fees for pulling a credit report or running a credit investigation during underwriting are finance charges under the general rule.¹ A separate rule for real-estate-secured loans, discussed below, pulls them back out.

Required Insurance Premiums

Insurance the lender requires to protect its interest in the loan is a finance charge. Credit life and credit disability policies are the usual examples. The pivot word is “required.” If the lender conditions approval on buying the policy, or refuses to let you choose a provider, the premium belongs in the finance charge.¹ Private mortgage insurance, generally required when a conventional buyer puts down less than 20%, 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. First, when the lender requires you to use a particular third-party service to get the loan, even if you pick the specific provider. Second, when the lender keeps part of the third-party fee, the retained portion is a finance charge.⁴

Closing agents, including settlement companies, title companies, and escrow officers, follow a slightly narrower rule. Their charges become finance charges only if the lender specifically requires the service, requires the charge, or keeps a cut.

Charges Excluded from the Finance Charge

Several categories stay out, so the disclosed cost does not balloon beyond what credit actually costs you.

Voluntary Insurance

Insurance premiums are excluded only when two steps both happen: the lender discloses in writing that buying the coverage is not a factor in loan approval, and you sign a separate written statement, after learning the cost, confirming you want the policy.¹ A lender who tells you the coverage is optional but never collects the written opt-in cannot claim the exclusion. Debt-protection plans sold with credit cards use the same two-part test.

Late Fees and Default Penalties

Charges imposed for missing a payment deadline are not finance charges because they penalize breach rather than compensate for the extension of credit. On credit cards, the current safe-harbor amounts are roughly $30 for a first missed payment and $41 for a repeat violation within six billing cycles, adjusted annually for inflation. A CFPB rule that would have capped these fees at $8 was vacated by a federal court in April 2025, leaving the prior framework in place. Mortgage late fees are typically a percentage of the overdue amount. These penalties still have to be disclosed, but they stay outside the finance-charge total.

Government-Imposed Fees

Taxes and charges collected by a government rather than the lender are excluded. County recording fees for a mortgage, real estate transfer taxes, and similar charges exist because the government requires them, so they would arise in any comparable transaction regardless of financing.

Seller’s Points

When a property seller pays points to the lender to help the buyer get financing, those seller-paid points are not finance charges, even if the seller recoups the cost through a higher sale price.⁶

Special Carve-Outs for Real Estate Loans

Loans secured by real property get an additional set of exclusions under 15 U.S.C. 1605(e), reflecting that real estate closings involve costs you would pay whether you borrowed or paid cash. These charges are excluded from the finance charge on a real-estate-secured loan:¹

Title examination, title insurance, and similar title-related fees.
Fees for preparing loan documents such as the deed, note, and settlement statement.
Escrow deposits for future property taxes and homeowner’s insurance.
Notary fees for the deed and other closing documents.
Appraisal fees and any pest-infestation or flood-hazard inspection fees.
Credit report fees, which would otherwise be caught by the general rule.

The exclusions apply only when the charges are bona fide and reasonable in amount. A lender cannot inflate an appraisal fee well above market and still take advantage of the carve-out.

Disclosure Rules and Tolerances

Pinpointing the correct finance charge is only half of what TILA requires. The lender has to tell you the number, in writing, before you commit.

Closed-End vs. Open-End

For closed-end loans such as mortgages and auto loans, the lender provides a disclosure statement showing the finance charge in dollars and the APR before you become legally obligated. For open-end credit such as credit cards, disclosures come at account opening and again on each periodic statement, with at least 45 days’ written notice before a rate change takes effect on a variable-rate account.⁶

The Three-Day Mortgage Waiting Period

On a mortgage, three specific changes made after you receive the Closing Disclosure trigger a new three-business-day waiting period: the APR becomes inaccurate, the loan product changes, or a prepayment penalty is added. The lender cannot close until three business days after you get the corrected disclosure.⁷ Less significant changes require only a corrected disclosure at or before closing.

Accuracy Tolerances

Small arithmetic slips do not automatically trigger liability. For loans secured by real property, the finance charge is treated as accurate if it understates the actual amount by no more than $100, and any overstatement is deemed accurate because it works in your favor.¹ For other consumer loans, the margins are tighter: $5 in either direction when the amount financed is $1,000 or less, and $10 above that.²

What Happens If a Lender Gets It Wrong

TILA liability does not require proof the lender meant to hide anything. The disclosure error itself is enough.

Statutory Damages

Individual statutory damages run from $400 to $4,000 for a closed-end loan secured by real property or a dwelling, and from $500 to $5,000 for open-end credit not secured by real property. Class action recovery is capped at the lesser of $1,000,000 or 1% of the lender’s net worth.⁸ In Koons Buick Pontiac GMC, Inc. v. Nigh, the Supreme Court held that the $100-to-$1,000 range for personal-property loans survived a 1995 amendment that some lower courts had read as removing the ceiling.⁹

Rescission

For a loan secured by your principal dwelling, other than a first-purchase mortgage, you normally have three business days after closing to rescind. If the lender never delivered accurate disclosures, the window stretches to three years from the date of the loan.¹⁰ A valid rescission voids the lender’s security interest in your home, and you owe no finance charges. The Eleventh Circuit applied these rules in Rodash v. AIB Mortgage Co., reversing the lower court and finding a TILA disclosure violation.¹¹

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 bona fide error despite procedures reasonably designed to prevent it. Clerical mistakes, calculation errors, computer malfunctions, and printing problems qualify. Errors in legal judgment do not: a lender who incorrectly concluded a fee was excludable cannot claim the mistake was a bona fide error.⁸

Deadlines to Sue

You generally have one year from the violation to bring a TILA claim. Miss it and the affirmative claim is gone, though you can still raise the violation defensively if the lender sues to collect. A three-year period applies to certain high-cost mortgage violations.⁸ Rescission carries its own three-year outer limit under 15 U.S.C. 1635, measured from the date you closed on the loan.¹⁰

One boundary worth noting: 15 U.S.C. 1605 reaches credit used primarily for personal, family, or household purposes. Business loans, commercial lines of credit, and agricultural financing fall outside TILA, and non-owner-occupied rental property is treated as a business purpose by default.⁶

1
Office of the Law Revision Counsel. 15 USC 1605 – Determination of Finance Charge
2
Consumer Financial Protection Bureau. 12 CFR 1026.18 – Content of Disclosures
3
Consumer Financial Protection Bureau. What Are Mortgage Origination Services? What Is an Origination Fee?
4
eCFR. 12 CFR 1026.4 – Finance Charge
5
Consumer Financial Protection Bureau. What Is Private Mortgage Insurance?
6
eCFR. 12 CFR Part 226 – Truth in Lending (Regulation Z)
7
Consumer Financial Protection Bureau. TILA-RESPA Integrated Disclosure FAQs
8
Office of the Law Revision Counsel. 15 USC 1640 – Civil Liability
9
Justia U.S. Supreme Court Center. Koons Buick Pontiac GMC, Inc. v. Nigh, 543 US 50 (2004)
10
Office of the Law Revision Counsel. 15 USC 1635 – Right of Rescission as to Certain Transactions
11
Justia. Rodash v. AIB Mortgage Company, 16 F.3d 1142 (11th Cir. 1994)