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Loan commitment fees are charged for the privilege of having a
fixed sum of money available to be borrowed for a given period of
time. The amount of a loan commitment fee is almost always based
on the amount of credit made available.
The banking industry normally and customarily treats annual
credit card fees as service income, not as interest or loan
commitment fees. If annual fees were considered as interest and
were then combined with finance charges on outstanding
(revolving) balances, the total interest would have exceeded the
maximum rate allowed under the usury laws of many States,
including the State of Florida. There is no correlation between
the amount of the annual fee and the amount of the cardholder's
credit line or outstanding balance. Nor is there any commitment
on the part of the issuing banks to make use of the card
available for a given period of time, since the issuing banks may
cancel the cards at any time.
For bank regulatory accounting purposes, banks are required
to amortize the annual fees over the period to which the fees
relate. These fees were excluded from the definition of finance
charges under the Truth in Lending Regulations, 12 C.F.R. secs.
226.4 and 226.407, as in effect for 1980 and 1981.7
Petitioner's Accounting Method
For 1980 and 1981, petitioner's issuing banks recorded the
7 12 C.F.R. sec. 226.407 (1980) (special ed.) and 12 C.F.R.
sec. 226.407 (1981) [special ed.].
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