Posted by Sarah Loats
The February 22nd date has come and gone, but there's another compliance date right around the corner for Reg Z. Perhaps hidden by all of the disclosure requirements we have to focus on for July 1 is the fact that the Fed has placed new staff comments into section 226.4, which defines the term "finance charge." These staff comments were in the January 2009 rule, survived the Credit CARD amendments, and are effective July 1.
The new comments to section 226.4 clarify that any transaction charges assessed on a credit card account are finance charges, regardless of whether the same charges are imposed on the withdrawal of funds from a checking or savings account. Let's cut to this chase - what does this mean? Cash advance fees and foreign transaction fees are finance charges, effective July 1, 2010.
Because of language in the previous rule that indicates that charges that are assessed in a comparable cash transaction are excluded from the finance charge, many institutions believed that fees that they charged to credit cardholders and debit cardholders alike were not finance charges. The Federal Reserve indicated in the preamble to its January 2009 rule that due to this language there was confusion as to whether such fees should be finance charges.
This commentary isn't necessarily limited to cash advance fees and foreign transaction fees. The comment states "any transaction charge imposed on cardholder by a card issuer is a finance charge...." But the examples use these two fees and these are probably the most common fees that were being excluded from the finance charge due to the fact that the same fees were charged to debit cardholders.
For more information, you can read the corresponding preamble and staff comments. The preamble provides insight into why the Fed chose this route, and the explanations in the staff commentary can prove useful, especially for determining what a foreign transaction fee is. For example, the staff commentary indicates that fees charged by third parties such as the card network are foreign transaction fees, and thus finance charges, if passed on to the consumer.
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