A finance charge is the cost of consumer credit as a dollar amount. Regulation Z (12 CFR 1026.4(a)) counts any charge the consumer pays as a condition of getting credit, such as interest or a service or carrying charge. It leaves out charges a cash buyer would also pay, and charges for actual unanticipated late payment (1026.4(c)(2)). A 0% plan with no added fees has no finance charge. It can still count as credit if a business regularly offers plans payable in more than four installments under a written agreement.
What is a finance charge?
Regulation Z defines it in 12 CFR 1026.4(a) as "the cost of consumer credit as a dollar amount." It includes any charge the consumer pays, directly or indirectly, that the creditor imposes "as an incident to or a condition of the extension of credit."
The same section sets the test that sorts most charges. A finance charge "does not include any charge of a type payable in a comparable cash transaction." If a customer paying in full would pay the same fee, it is not a finance charge.
What counts as a finance charge?
Section 1026.4(b) gives examples. The ones most relevant to a payment plan:
- Interest, time price differential, and any amount payable under an add-on or discount system of additional charges (1026.4(b)(1)).
- Service, transaction, activity and carrying charges (1026.4(b)(2)).
- Appraisal, investigation and credit report fees (1026.4(b)(4)).
A plan fee charged only to customers who choose to pay over time looks like a charge imposed as a condition of the credit. The comparable cash transaction test is the place to start.
What doesn't count?
Section 1026.4(c) lists exclusions. Two that matter for plans:
- Application fees charged to all applicants for credit, whether or not credit is actually extended (1026.4(c)(1)).
- Late charges: "Charges for actual unanticipated late payment, for exceeding a credit limit, or for delinquency, default, or a similar occurrence" (1026.4(c)(2)).
| Charge on a plan | Finance charge? | Section |
|---|---|---|
| Interest on the balance | Yes | 1026.4(b)(1) |
| Carrying or service charge for paying over time | Yes | 1026.4(b)(2) |
| Fee a cash buyer also pays | No | 1026.4(a) |
| Fee for an actual late payment | No | 1026.4(c)(2) |
| Application fee charged to all applicants | No | 1026.4(c)(1) |
Why can a 0% plan still be credit?
Because the creditor test has two routes. Under 12 CFR 1026.2(a)(17)(i), a creditor is a person who regularly extends consumer credit "that is subject to a finance charge or is payable by written agreement in more than four installments (not including a down payment)."
A 0% plan with no added fees has no finance charge. But if it is payable by written agreement in five or more installments, not counting a down payment, it meets the second route. A business that does this regularly is a creditor, and the disclosure rules follow. "Regularly" means more than 25 times in the preceding calendar year, or the current one if the preceding year didn't meet it (1026.2(a)(17)(v)).
See Truth in Lending Act and Is a 0% payment plan a loan? for the rest of that test.
Where does the finance charge show up?
In the closed-end disclosures. Section 1026.18(d) requires "the finance charge, using that term, and a brief description such as 'the dollar amount the credit will cost you.'" Under 1026.17(a)(2), the finance charge and the annual percentage rate must be more conspicuous than any other disclosure except the creditor's identity. On a 0% plan with no added fees, that figure is zero.
General information, not legal advice.
- CFPB: Regulation Z, 12 CFR 1026.4, Finance charge
- CFPB: Regulation Z, 12 CFR 1026.2, Definitions
- CFPB: Regulation Z, 12 CFR 1026.17, General disclosure requirements
- CFPB: Regulation Z, 12 CFR 1026.18, Content of disclosures
Every figure on this page was checked against these sources on Oct 6, 2026. General information, not legal or tax advice.