IN THE SUPREME COURT OF THE STATE OF KANSAS
No. 78,944
HENRY GONZALES, Individually and on Behalf of All Others Similarly Situated,
Appellant,
v.
ASSOCIATES FINANCIAL SERVICE COMPANY OF KANSAS, INC.,
Appellee.
SYLLABUS BY THE COURT
In a summary judgment case interpreting K.S.A. 16a-2-401(9)(b) of the Kansas Uniform Consumer Credit Code (UCCC) the record is reviewed and under the facts here it is held: (1) K.S.A. 16a-2-401(9)(b), which is not contained in the Model Uniform Act, authorizes, in addition to the applicable permitted finance charge, a nonrefundable origination fee legislatively named a nonrefundable prepaid finance charge, (2) K.S.A. 16a-2-401(9)(b) authorizes the lender to charge an origination fee based on the amount financed, including refinancing, rather than only on the amount of new money advanced, (3) if the UCCC is inadequate for failing to require explicit disclosure of the disadvantages or advantages of refinancing versus taking out a new loan, the remedy lies with the legislature, (4) K.S.A. 16a-5-108 does not create an independent claim for damages; unconscionability under the UCCC is an affirmative defense to the enforcement of a credit agreement and the lender did not engage in unconscionable acts, (5) the borrower does not have a viable fraud claim, (6) the lender's conduct was not deceptive under the Kansas Consumer Protection Act, K.S.A. 50-623 et seq., and (7) summary judgment in favor of the lender was proper.
Appeal from Sedgwick district court; DAVID W. DEWEY, judge. Opinion filed November 6, 1998. Affirmed.
Arden J. Bradshaw, of Bradshaw, Johnson & Hund, of Wichita, argued the cause, and Ryan Hodge, of Ray Hodge & Associates, L.L.C., of Wichita, was with him on the briefs for appellant.
James D. Oliver, of Foulston & Siefkin, L.L.P., of Topeka, argued the cause, and Martha Aaron Ross, of the same firm, of Wichita, was with him on the brief for appellee.
The opinion of the court was delivered by
SIX, J.: This first impression consumer loan case, before us on summary judgment, focuses on K.S.A. 16a-2-401(9)(b) of the Kansas Uniform Consumer Credit Code (UCCC). K.S.A. 16a-2-401(9)(b) is not contained in the Model Uniform Act. It authorizes, in addition to the permitted finance charge, a nonrefundable origination fee legislatively named a "nonrefundable prepaid finance charge."
The plaintiff, Henry Gonzales, refinanced loans with defendant Associates Financial Service Company of Kansas, Inc. (Associates) three times within a 15-month period. With the second and third refinancings, money was given directly to him. Gonzales claims the origination fees charged on the second and third refinancings were fraudulent and unconscionable. The fees were based upon the entire amount financed rather than on the smaller amount of new money given to him. The district court granted summary judgment for Associates, and Gonzales appeals.
Jurisdiction is under K.S.A. 20-3018(c), a transfer from the Court of Appeals on our motion.
The primary issue, which influences the resolution of other issues, is whether K.S.A. 16a-2-401(9)(b) allows Associates, under the facts here, to charge a nonrefundable origination fee (nonrefundable prepaid finance charge) based upon the entire amount financed, or only upon the amount of new money advanced.
Secondary issues are:
(a) Did Associates engage in unconscionable acts, violating K.S.A. 16a-5-108?
(b) Does Gonzales have a viable fraud claim?
(c) Was Associates' conduct deceptive under the Kansas Consumer Protection Act (KCPA), K.S.A. 50-623 et seq.?
Finding no error, we affirm.
K.S.A. 16a-2-401(9)(b) says:
"In addition to the applicable finance charge permitted . . . for consumer loans not secured by an interest in land, a creditor may contract for and receive, in connection with any such . . . loan, a nonrefundable origination fee in an amount not to exceed the lesser of 2% of the amount financed or $100, which fee shall be a nonrefundable, prepaid finance charge." (Emphasis added.)
FACTS
From 1989 to 1994, Gonzales lived in Wichita while serving in the Air Force. He enrolled in Garden City Junior College before joining the military. (He completed 43 hours of college credit in the Air Force, primarily in non-commissioned officer school.) His duties as an aircraft fuel system mechanic required him to read and follow technical orders, job guides, and instruction manuals. He also trained in logistics and supply, and served as a supply sergeant in charge of air base tool supply.
Gonzales was a 13-year customer of Associates or an out-of-state affiliate. He obtained credit from many creditors other than Associates (including ITT, Beneficial Finance, American General Finance, Commercial Credit Corporation, Luke Federal Credit Union, Golden Plains Credit Union, Discover Card, Chase Visa, Mercantile Bank Mastercard, Sears, Montgomery Ward, J.C. Penney, Spiegel, Bank One, and Union National Bank).
Gonzales first borrowed money from Associates in Wichita in September 1992. The "amount financed" was $5,655.84, using $3,074.87 to pay off a car loan from Golden Plains Credit Union and $2,508.97 to pay off the outstanding balance he owed Associates Financial Services of Arizona. No money was given directly to him. He does not base his claim against Associates on the September 1992 loan. He asserts, however, that if he had been charged the K.S.A. 16a-2-401(9)(b) incremental origination fee rate of 2%, the result would have been a fee of $61.50 (2% of $3,074.87) instead of $100. Gonzales admits the $100 charged was disclosed as a prepaid finance charge but says he was not told that an origination fee had been charged. He looked at the September 1992 disclosure statement and went through it with an Associates' employee. He saw the disclosure of the $100 prepaid finance charge before he signed. He did not ask any questions.
Gonzales entered into the September 1992 loan agreement in order to lower his total monthly payments, thus freeing up additional spending money. His new monthly payment was $80 or $90 per month less than the combined total of his payments on the Golden Plains and Arizona loans. He testified he would not have taken out the new loan if it had not reduced his monthly payments.
Gonzales says that after September 1992, he was contacted by Associates "on a continuing basis." He received cards through the mail and telephone calls. In the mail advertising, Associates would "say to the effect to come in and see them, that they've got money, Christmas is coming up, you know, would you like to borrow more money. You know, things like that." He testified that in telephone calls, Associates employees would say, "I had made my payments on a pretty regular basis, and that if I was interested that, you know, they could loan me some more money."
Associates employees endeavor to talk to customers in person or by telephone at least quarterly if time allows. During such contacts, Associates will check on customer satisfaction and ask if the customers have any questions. Associates will also ask creditworthy customers if they are interested in obtaining new loans. The customer is invited to come in and borrow more money. This practice is common with Associates and in the industry. If a loan is made, local Associates' managers are instructed to charge the maximum K.S.A. 16a-2-401(9)(b) origination fee. The office manager is eligible for quarterly bonuses if business performance improves.
During 1993, Gonzales spoke with an Associates employee in person or by telephone on or about March 12, April 20, May 11, and August 3. Associates' "Account Follow-Up History" reveals that on April 20, 1993, "TR" called Henry Gonzales at 14:53 to solicit him to apply for an advance of further funds. An answering machine apparently responded, and TR left a message to "call ASAP." Less than an hour later Gonzales apparently called back, and Associates' log suggests that he was solicited to apply for a further advance of money. According to the log Gonzales replied that he did not wish to do so at that time but "might need some cash down the road." Gonzales showed no current interest in borrowing additional money on each occasion. He testified, "I knew for myself that I was already overextended and I didn't really want to get any more money from them."
In May 1993, an Associates employee noted for the file that Gonzales said he did not have any cash reserve and wanted to save his credit with Associates "so if something comes up needs cash could get it here." Associates' records of an August 1993 conversation show that, in response to an inquiry about his credit needs, Gonzales replied, "maybe later for auto repair[s]."
On August 2, 1993, Gonzales purchased a 1992 Chevy van for $18,840.81. The purchase was financed under an installment credit agreement, assigned by the dealer to a bank, with monthly payments to the bank of $329.39. Gonzales became concerned about the size of his monthly payments. In addition, he did not have enough money to pay for the license tag and property taxes on the new van. He called Associates. The office suggested he borrow additional money. He decided to take out a new loan.
On August 20, 1993, Gonzales executed a Disclosure Statement, Note, and Security Agreement (August Loan Agreement) which provided for a loan with an "amount financed" of $5,134.83. Of the amount financed, $500 was advanced in cash to Gonzales, $60 was applied to a personal property insurance premium, and $4,574.83 was applied to repay his existing loan balance. Before August 20, 1993, Gonzales was required to make loan payments to Associates of $215.29 per month. The August Loan Agreement reduced his monthly payments to $197.47. He understood that by refinancing, his monthly payments would be reduced. He did not ask Associates about the possibility of another loan in addition to the loan he had, nor was a separate loan proposed. Gonzales also understood that if he had to take out a separate loan, his payments would probably have gone up. The September 1992 note had been in effect for almost 11 months at this time. Rather than adding to that loan, Associates paid it off and wrote a new promissory note.
Associates added a $100 origination fee to the finance charge. (Gonzales claims the origination fee should have been $10, 2% of the $500.) When the note was rewritten the interest portion of the September 1992 finance charge was refunded pro rata; however, the origination fee was not refunded. Gonzales claims he was not informed that another origination fee had been charged, nor was he aware of the effect the fee had on the cost of his loan.
Gonzales made the September payment for the August loan on time but did not make the October payment. He called Associates saying his son had been in the hospital and the October payment would be made on November 4, 1993. It was. He made the November payment later in the month.
The next contact between the parties was initiated by Gonzales on December 13, 1993, when he telephoned Associates to say his son was back in the hospital and he wanted to defer a payment.
In response to his request for a deferral, Associates suggested that he could refinance the balance of his current loan and borrow an additional $400. Gonzales' credit rating had deteriorated, but he was still able to qualify for the new loan. He says Associates convinced him to borrow more money.
Gonzales executed a Disclosure Statement, Note and Security Agreement (the "December Loan Agreement") providing for an "amount financed" of $5,458.13. At closing, he received $410 in cash, $4,970.13 paid off the balance of his previous loan, and $78 paid an insurance premium on property that was security for the loan.
The December Loan Agreement required no payment until February 1, 1994, relieving Gonzales of payments for December 1993 and January 1994. The contract interest rate on the new loan was lowered to 22% compared with 22.5% under the August Loan Agreement. The amount of Gonzales' regularly scheduled monthly payment was reduced from $197.47 to $187.97. Again, rather than adding to the existing loan, the August loan was paid off and a new note was written. Another $100 origination fee was added to the finance charge. (Gonzales claims the proper origination fee for this loan was $8.20, 2% of $410.) Once again the interest component of the August 1993 finance charge was refunded pro rata, but the origination fee was not. Gonzales says: (1) He was not informed of the origination fee and (2) he had no perception of the effect the fee was having on his loan charges. He did not know that the "nonrefundable prepaid finance charge" was really a nonrefundable origination fee.
Before obtaining the August and December loans, Gonzales had comparison-shopped for credit terms and was aware that Associates charged higher rates than banks, but he had decided that Associates was his best source of credit.
With respect to each of the three loans, Associates employees (a) took a new loan application from Gonzales, (b) verified his income and employment, (c) obtained and reviewed a credit report, (d) evaluated the loan application and credit information under Associates' standards, (e) prepared a set of loan documents, including a Truth-in-Lending Act disclosure statement, and (f) met with Gonzales to explain the loan papers and sign and close the loan. These procedures do not differ in any material respect from the procedure followed by Associates in making a loan to a first-time customer.
Part of the consideration to Associates for entering into the August and December Loan Agreements was the K.S.A. 16a-2-401(9)(b) origination fee. Gonzales' August and December Loan Agreements each disclosed that the amount financed was more than $5,000 and that there was a "prepaid finance charge" of $100 which was "not part of 'Amount Financed.'"
The August and December Loan Agreements included a statement which disclosed, among other things, the following: "PREPAYMENT: If you pay off early, you will not have to pay a penalty. There will be no rebate of the prepaid finance charge."
The August and December Loan Agreements also make a disclosure using the term origination fee: "PREPAYMENT: I [Gonzales] can prepay my loan at any time with interest on such payment to the date of payment. If I prepay in full, no part of the origination fee will be refunded."
Gonzales testified, concerning the closing of the August Loan Agreement, he had seen "all the figures on the sheet," he did not know what the prepaid finance charge was, he "really didn't think about it," and he did not ask any questions.
Associates went over the disclosures with Gonzales at the closing of the December Loan Agreement. Concerning the loan origination fee or prepaid finance charge, his testimony was:
"Q. And did they mention the $100?
"A. They would mention that it was the finance charge. There again, I was assuming that finance charge was part of the interest.
"Q. And you're referring to the prepaid finance charge of $100 that's shown on the first page of Exhibit 10?
"A. Right.
"Q. Did you ask him any questions about that $100 charge on this occasion?
"A. No."
Gonzales made no payments on the December Loan Agreement. Shortly after the first payment came due on February 1, 1994, he filed for bankruptcy.
Gonzales kept the 1992 Chevy van and reaffirmed the van purchase indebtedness to the bank. Associates moved for relief from the stay in order to repossess a 1987 Plymouth, the collateral on his loan. After applying the proceeds of the car's sale, Associates was left with an unsecured balance of more than $4,000, which was discharged in bankruptcy.
The district court, in entering summary judgment for Associates, concluded that Gonzales had attempted to dispute few of the facts, and "the purported disputes were not shown to be material upon review of plaintiff's own testimony and documents in the record."
DISCUSSION
Our summary judgment standard has been frequently expressed. All facts must be taken in the light most favorable to the party who opposed summary judgment. Kerns v. G.A.C., Inc., 255 Kan. 264, 268, 875 P.2d 949 (1994). Summary judgment is appropriate if there are no genuine issues of material fact and the movant is entitled to judgment as a matter of law. K.S.A. 60-256(c). Our standard of review is de novo. Gamblian v. City of Parsons, 261 Kan. 541, 546, 931 P.2d 1238 (1997).
This is a statutory interpretation case. We agree with the district court's conclusion that Gonzales' factual assertions do not create any genuine issues of material fact. Statutory interpretation involves a question of law. Our standard of review is unlimited. In re Tax Appeal of Boeing Co., 261 Kan. 508, Syl. ¶ 1, 930 P.2d 1366 (1997).
Gonzales' Origination Fee Contentions
Gonzales argues that the K.S.A. 16a-2-401(9)(b) term "origination" means the fee can only be charged for the expenses in setting up the original file and making the original loan. According to Gonzales, the fee should not apply at all to refinancing. Any other interpretation, he contends, allows for "outrageously high incremental charges for the additional money borrowed," is inconsistent with the plain meaning of the language, "works an absurd result," and is contrary to the purpose of the UCCC. According to Gonzales, deception is present because no one ever told him that origination fees were charged every time a loan was refinanced. Similarly, he reasons deception and unconscionability are present because of Associates' (1) failure to disclose that the fee is added to loan principal and (2) continuous solicitations to refinance.
Gonzales asserts fraud because the loan documents refer to a prepaid finance charge without disclosing that the only such charge was the origination fee.
Ruling of the District Court
We summarize the district court's conclusions: (1) The definition of "amount financed" is not ambiguous; it includes the entire amount of credit extended when a loan is refinanced or consolidated with another loan. (2) Calling a loan origination fee a prepaid finance charge is not deceptive. (3) Associates had no obligation to explain the terms of the loan in any more detail or in any different manner than it did. The Truth-in-Lending provisions of the federal Consumer Credit Protection Act and Regulation Z of the Federal Reserve Board, which implements that Act, prescribe the elements of a consumer credit transaction deemed material by law for disclosure purposes. When a lender gives accurate Truth-in-Lending disclosures, as Associates did in this case, the lender has no obligation to provide additional disclosures. (4) The relationship between Gonzales and Associates was debtor/creditor, not a fiduciary relationship. (5) Associates' conduct was not unconscionable. Every loan requires clerical work and takes time, as did Gonzales' loans. A $100 origination fee is not an excessive charge under the facts here. (6) It is not the court's or a jury's province to overrule the legislature's determination. (7) The remedy for a consumer who contends that the charges permitted by the statute are too high lies with the legislature. (8) Gonzales discharged in bankruptcy the more than $4,000 he owed Associates, and in effect never paid the loan origination fees.
The K.S.A. 16a-2-401(9)(b) Origination Fee
Our function in reviewing a statute is easily stated. It is to construe the language so as to give effect to the intent of the legislature. There is no invariable rule for the determination of that intention. The legislature has instructed us that "[w]ords and phrases shall be construed according to the context and the approved usage of the language." K.S.A. 77-201 second. Technical words and words and phrases that have acquired a peculiar meaning in law are to be construed according to their peculiar and appropriate meanings. K.S.A. 77-201 second. Federal Truth-in-Lending Act (TILA), Regulation Z, 12 C.F.R. § 226 (1998) is incorporated in the UCCC by K.A.R. 75-6-26(c), K.S.A. 16a-3-206, and K.S.A. 16a-6-117. Here, the legislature is presumed to have expressed its intent through the language of the UCCC and K.S.A. 16a-2-401(9)(b). We must give effect to the intent of the legislature as expressed rather than determine what the law should or should not be. Brown v. U.S.D. No. 333, 261 Kan. 134, 142, 928 P.2d 57 (1996).
(1) Lenders are permitted to call origination fees "prepaid finance charges" in loan documents.
The focus of our analysis is on the legislature, both federal and state. The TILA (Regulation Z) applies to virtually all consumer loans. 12 C.F.R. § 226.1(c). Thus, state legislatures must consider the implications of Regulation Z when they tinker with their own consumer loan statutes. Why not simply call the origination fee here an origination fee? The answer can be found in a detailed analysis of Regulation Z. The discussion that follows will demonstrate that: (a) origination fees are considered prepaid finance charges under the TILA; (b) the legislature knew that to be true when it passed K.S.A. 16a-2-401(9)(b); and (c) the origination fees charged by Associates fit the definition of a "prepaid finance charge."
(a) An origination fee is a prepaid finance charge under the TILA (Regulation Z).
The exact term "origination fee" is not found in Regulation Z. However, origination fees are considered a type of finance charge. Gonzales admits as much when he states, "For purposes of disclosure, loan companies are required to treat the Origination Fee as a finance charge." A finance charge is defined as "the cost of consumer credit as a dollar amount." 12 C.F.R. § 226.4(a). 12 C.F.R. § 226.4(a) explains that a finance charge "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." An origination fee meets the Regulation Z definition of a finance charge. An origination fee is a charge by the creditor and payable by the debtor. 12 C.F.R. § 226.4(a). An origination fee is an incident to or a condition of the extension of credit as well. Origination fees may be charged and paid directly or indirectly. Under 12 C.F.R. § 226.4(b)(3), an example of a finance charge includes loan fees and similar charges.
A "prepaid finance charge" necessarily includes the definition of "finance charge" above, but more specifically means "any finance charge paid separately in cash or by check before or at consummation of a transaction, or withheld from the proceeds of the credit at any time." 12 C.F.R. § 226.2(a)(23). Thus, it follows that a loan fee/origination fee paid up front or withheld from the proceeds of the loan is in fact a prepaid finance charge under Regulation Z.
(b) The legislature knew that origination fees were considered "prepaid finance charges" under Regulation Z when enacting K.S.A. 16a-2-401(9)(b).
The legislature named "origination fee" a "nonrefundable prepaid finance charge" in K.S.A. 16a-2-401(9)(b). The legislative history of K.S.A. 16a-2-401(9)(b) demonstrates why. The statute, which is not part of the Model Uniform Act, was adopted in 1988. L. 1998, ch. 85 and 86. Since 1986, lenders have been permitted to charge origination fees on consumer loans secured by real estate. K.S.A. 16a-2-401(9)(a). Testimony before the 1988 legislature advocated the need for a way to offset the expenses of making small loans. The legislature apparently recognized lenders were reluctant to make small loans because the finance charges alone were insufficient to cover the loan processing costs. Testimony from the financial service industry suggested that without such changes, the small loan market would dry up in Kansas. K.S.A. 16a-2-401(9)(b) was added to allow lenders to recoup their costs by charging a loan origination fee labeled a "nonrefundable prepaid finance charge." (Minutes of the House Committee on Commercial and Financial Institutions, March 24, 1988).
The label seems to be deliberate. Relevant discussion on the topic can be found in the Senate committee minutes of February 18, 1998, on Senate Bill 552. There, the Senate considered proposed technical or "clean up" amendments to various sections of the UCCC, including K.S.A. 16a-2-401. While it was Senate Bill 507 which ultimately allowed the origination fee Gonzales complains of, both bills (on the same day) made changes to 16a-2-401 during the same legislative session. Senate Bill 552 labeled the 3% nonrefundable origination fee on consumer loans secured by real estate, permitted since 1986, a "nonrefundable prepaid finance charge." The committee minutes of February 18, 1998, reveal that there was thoughtful discussion concerning origination fees. The committee considered moving the sections on origination fees to 16a-2-501, which enumerates "additional charges" such as insurance, official fees, and taxes. This suggestion was quickly disposed of due to Regulation Z.
As previously explained, under the TILA (Regulation Z) origination fees are considered finance charges. See 12 C.F.R. § 226.4(b)(3). 12 C.F.R. § 226.18(c)(iv) of Regulation Z mandates disclosure of "the prepaid finance charge." The committee was concerned that if the statute was amended to include origination fees as "additional charges" (in 16a-2-501) but lenders were required to disclose the origination fee as "the prepaid finance charge" under Regulation Z, the amendment might lead to confusion. Specifically, the minutes read: "If it is put in state law as not a finance charge, but lenders have to disclose it as a finance charge under the truth in lending, it becomes confusing." See Minutes of Senate Committee on Financial Institutions and Insurance, February 18, 1988, p. 2. The committee ultimately decided to keep the origination fees (for loans secured by real estate) in 16a-2-401 as a "nonrefundable prepaid finance charge." During the same committee hearings, when considering Senate Bill 507 allowing origination fees for loans not secured by real estate, the committee logically added this new origination fee to section 16a-2-401 as subsection (9)(b) and once again labeled the origination fee a "nonrefundable prepaid finance charge." The 12 C.F.R. § 226.18(c)(iv) Regulation Z disclosure requirement suggests that the legislature purposely used the term "prepaid finance charge."
There is an absence of any legislative discussion tending to support Gonzales' contention that the fee was intended to apply only to the original set up of a consumer's loan file with the lender. Gonzales advances no support for his reading of K.S.A. 16a-2-401(9)(b) other than a general legislative intent to aid and protect consumers. Gonzales' contention that the statute does not permit a lender to call an origination fee a prepaid finance charge lacks merit.
Under the statute, the origination fee is an amount "not to exceed the lesser of 2% of the amount financed or $100." K.S.A. 16a-2-401(9)(b). The amount financed in the August and December Loan Agreements exceeded $5,000. Both loans say that Gonzales is being charged $100 in "prepaid finance charge[s]." Similarly, the agreements disclose the fact that prepaid finance charges will not be rebated in the event of prepayment. See 12 C.F.R. § 226.18(k)(2) (1988). Gonzales did not pay the origination fee up front. The origination fee charged here was withheld from the proceeds of Gonzales' loan.
(c) The origination fee was withheld from the proceeds of the loans to Gonzales.
We acknowledge that it is difficult to determine how the origination fee is paid from the face of the loan documents. However, we do not attribute the difficulty to an attempt to deceive on the part of Associates. The difficulty arises because of state legislation and the rigid disclosure requirements of Regulation Z.
Gonzales' loan documents contain certain disclosures mandated by Regulation Z. The documents also contain certain definitions of the terms on the documents; also mandated by Regulation Z.
For the purposes of our discussion, the two most important disclosures a creditor must make under Regulation Z are (i) the amount financed and (ii) the itemization of the amount financed. See 12 C.F.R. § 226.18(b) and (c).
(i) Amount Financed:
The amount financed must be disclosed "using that term, and a brief description such as the amount of credit provided to you or on your behalf." 12 C.F.R. § 226.18(b). The amount financed is calculated by:
"(1) Determining the principal loan amount . . . ;
"(2) Adding any other amounts that are financed by the creditor and are not part of the finance charge; and
"(3) Subtracting any prepaid finance charge." (Emphasis added.) 12 C.F.R. § 226.18(b)(1)-(3).
The "amount financed" is disclosed on Gonzales' loan documents. The "amount financed" is also defined as "the amount of credit provided to you or on your behalf." 12 C.F.R. § 226.18(b). This definition was on Gonzales' loan documents, as Regulation Z requires. The amount financed does not include the prepaid finance charge, also as mandated by Regulation Z.
(ii) Itemization of Amount Financed
Creditors must include a separate written itemization of the amount financed. 12 C.F.R. § 226.18(c). This statement includes four things: (1) the amount of any proceeds distributed directly to the consumer; (2) the amount credited to the consumer's account with the creditor; (3) any amounts paid to other persons by the creditor on the consumer's behalf; and (4) the prepaid finance charge. The prepaid finance charge is not a part of the amount financed. The fact that the prepaid finance charge is included in the "itemization of amount financed" is, thus, counter-intuitive, but inclusion is what 12 C.F.R. § 226.18(c) requires.
With the Regulation Z requirements in mind, we now turn to Gonzales' loan documents. Our question is how the $100 origination fee was paid here. The formula for calculating the amount financed provides part of the answer. A creditor must take the principal loan balance and subtract, among other things, the origination fee to arrive at the "amount financed." The amount financed on Gonzales' December Loan Agreement is $5,458 (rounded). Thus, Associates had to take the principal amount of the loan and subtract the $100 fee to arrive at $5,458. Unfortunately, this calculation was not done on the loan documents themselves. Therefore, no principal amount of $5,558 appears on the December Loan Agreement. However, $5,558 is noted on the August Loan Agre