Determining whether a fee is a finance charge can pose a challenge because there are often special rules, exceptions and subjectivity that go along with it. One area where institutions often try to apply special rules where they really don’t exist is when it comes to seller-paid fees. While the regulation gives special rules for “seller’s points”, it does not give special rules for other seller-paid amounts. The Regulation also limits “seller’s points”, as …charges imposed by the creditor upon the noncreditor seller of property for providing credit to the buyer or for providing credit on certain terms. [Commentary to §1026.4(c)(5) #1]
Pay particular attention to the wording “imposed by the creditor upon the …seller”. We’ve never seen an agreement between a creditor and seller that would obligate a seller to pay for a service associated with the loan. Loan agreements, of course, are between the borrower and the creditor. While there is also (usually) a separate purchase agreement, that is between the borrower/buyer and the seller. None of these types of agreements impose an obligation on the seller by the creditor, allowing a creditor to then exclude a seller-paid amount from the finance charge.
The Commentary does go on to specifically state that “other” seller-paid amounts are to be treated as finance charges, as otherwise laid out in §1026.4 of Regulation Z:
Other seller-paid amounts. Mortgage insurance premiums and other finance charges are sometimes paid at or before consummation or settlement on the borrower's behalf by a noncreditor seller. The creditor should treat the payment made by the seller as seller's points and exclude it from the finance charge if, based on the seller's payment, the consumer is not legally bound to the creditor for the charge. A creditor who gives disclosures before the payment has been made should base them on the best information reasonably available.
This means that, absent any separate agreement that would give a creditor the right to charge a seller, seller-paid amounts must follow the finance charge rules found in §1026.4.
Jerod explains more in the video: