Are Closing Protection Letter fees classified as prepaid finance charges?
Generally speaking, a charge is a finance charge unless it is specifically excluded. You might be able to squeeze this into the exemption afforded by Reg. Z Section 226.4(c)(7) for title examination and related charges, but that is a stretch. The better, more conservative approach would be to treat this type of charge as a finance charge. Here’s why it would be a stretch to characterize a fee for a closing protection letter (CLO) as a 4(c)(7) charge (i.e., a non-finance charge). At first glance, one may think that as a title insurance company issues closing protection letters, a fee for such letter may be considered a “[F]ee[s] for title examination, abstract of title, title insurance, property survey, and similar purposes” under Reg. Z Section 226.4(c)(7)(i). But, it is not. A closing protection letter has nothing to do with title examination, title insurance, etc. A closing protection letter identifies “the circumstances under which a title underwriter will accept liability for its a
