We believe that a document preparation fee would be considered a finance charge, as it would not be charged in a comparable cash transaction and is not otherwise exempted from the definition of a finance charge (because the loan is not secured by residential real estate). In addition, the document preparation fee is a prepaid finance charge because it will be withheld from the proceeds of the credit.

On the other hand, the fee paid to the Secretary of State for securing your lien on a vehicle’s certificate of title would not be considered a finance charge. Regulation Z’s finance charge calculation excludes fees prescribed by law “that actually are or will be paid to public officials for … perfecting, releasing, or satisfying a security interest.” The Illinois Vehicle Code requires a fee be paid to the Secretary of State in order to perfect a lien in a vehicle. Because the fee is prescribed by law and necessary to perfect your lien, it is excludable, provided that the fee is itemized and disclosed.

The recording fee would be included in the amount financed, since it is being financed and is not part of the finance charge. However, as a prepaid finance charge, the document preparation fee would not be included in the amount financed.

For resources related to our guidance, please see:

• Regulation Z, 12 CFR 1026.4(a) (“The finance charge is the cost of consumer credit as a dollar amount. It includes any charge payable directly or indirectly by the consumer and imposed directly or indirectly by the creditor as an incident to or a condition of the extension of credit. It does not include any charge of a type payable in a comparable cash transaction.”)

• Regulation Z, 12 CFR 1026.4(c)(7)(ii) (“The following fees in a transaction secured by real property or in a residential mortgage transaction, if the fees are bona fide and reasonable in amount . . . (ii) Fees for preparing loan-related documents, such as deeds, mortgages, and reconveyance or settlement documents . . . .”) (emphasis added)

• Regulation Z, 12 CFR 1026.2(a)(23) (“Prepaid finance charge means any finance charge paid separately in cash or by check or at consummation of a transaction, or withheld from the proceeds of the credit at any time.”) (emphasis added)

• Regulation Z, 12 CFR 1026.4(e)(1) (“If itemized and disclosed, the following charges may be excluded from the finance charge: (1) Taxes and fees prescribed by law that actually are or will be paid to public officials for determining the existence of or for perfecting, releasing, or satisfying a security interest.”)

• Illinois Vehicle Code, 625 ILCS 5/3-202(b) (“A security interest is perfected by the delivery to the Secretary of State of the existing certificate of title, if any, an application for a certificate of title containing the name and address of the lienholder and the required fee.”) (emphasis added)

• Regulation Z, 12 CFR 1026.18(b) (“The amount financed is calculated by: Determining the principal loan amount or the cash price (subtracting any downpayment); Adding any other amounts that are financed by the creditor and are not part of the finance charge; and Subtracting any prepaid finance charge.”)