The thesis of this article is that a more workable approach to characterizing fees for optional products and services is possible by focusing on charges that represent payment for discrete products or services of value to the consumer, freely chosen by consumers as contract options which do not affect the amount of credit available to the consumer, the consumer's access to it, or the allocation of payment responsibility and credit risk in the transaction or plan. In other words, these fees are for separate-or separable-purchases, analogous to subsequent events in closed-end credit that require no new disclosure or adjustment in the disclosed finance charge. 20 The primary focus of this article is on open-end credit because it involves greater interpretive and operational challenges.
This article first explains, in Part II, the critical role of "finance charges" and "other charges" as costs imposed in credit transactions and thus elements in the TILA disclosure scheme. Part III provides a broad overview of the marketing and economic considerations that influence how creditors price their products, concluding that there is a long-accepted economic framework for identifying the true costs of credit. The next section, Part IV, analyzes the existing legal guidance on whether and when charges for optional products or services are finance charges or "other charges" in the TILA regime, suggesting that the current law lacks a consistent and coherent principle. Parts V and VI then propose a set of extreme alternative approaches, and several intermediate approaches on how TILA might deal with optional charges, and analyze how those approaches lack economic integrity. Finally, Part VII suggests a different approach that builds on accepted economic premises and characterizes charges as finance charges only when they compensate the creditor for one of the four recognized components of the cost of credit-origination, servicing, funding, and risk. Recognition of this principle, the authors suggest, can be accomplished, without amendments to TILA or Regulation Z, by amendments to the Official Staff Commentary.
Ralph J. Rohner & Thomas Durkin, TILA ‘Finance’ and ‘Other’ Charges in Open-End Credit: The Cost-of Credit Principle Applied to Charges for Optional Products or Services, 17 LOY. CONSUMER L. REV. 137 (2005).