(a) Accuracy of annual percentage rate.
(1) The annual percentage rate is a measure
of the cost of credit, expressed as a yearly rate, that relates the
amount and timing of value received by the consumer to the amount
and timing of payments made. The annual percentage rate shall be determined
in accordance with either the actuarial method or the United States
Rule method. Explanations, equations and instructions for determining
the annual percentage rate in accordance with the actuarial method
are set forth in appendix J to this regulation.
45d(2) As a general rule, the annual percentage
rate shall be considered accurate if it is not more than ⅛ of 1 percentage
point above or below the annual percentage rate determined in accordance
with paragraph (a)(1) of this section.
(3) In an irregular transaction, the annual
percentage rate shall be considered accurate if it is not more than
¼ of 1 percentage point above or below the annual percentage rate
determined in accordance with paragraph
(a)(1) of this section.
466-884.1
(4) Mortgage
loans. If the annual percentage rate disclosed in a transaction
secured by real property or a dwelling varies from the actual rate
determined in accordance with paragraph (a)(1) of this section, in
addition to the tolerances applicable under paragraphs (a)(2) and
(3) of this section, the disclosed annual percentage rate shall also
be considered accurate if—
(i) the rate results from the disclosed
finance charge; and
(ii) (A) the disclosed finance charge would
be considered accurate under section 226.18(d)(1); or
(B) for purposes of rescission, if the disclosed
finance charge would be considered accurate under section 226.23(g)
or (h), whichever applies.
(5) Additional tolerance for mortgage loans. In a transaction secured
by real property or a dwelling, in addition to the tolerances applicable
under paragraphs (a)(2) and (3) of this section, if the disclosed
finance charge is calculated incorrectly but is considered accurate
under section 226.18(d)(1) or section 226.23(g) or (h), the disclosed
annual percentage rate shall be considered accurate—
(i) if
the disclosed finance charge is understated, and the disclosed annual
percentage rate is also understated but it is closer to the actual
annual percentage rate than the rate that would be considered accurate
under paragraph (a)(4) of this section;
(ii) if the disclosed finance charge
is overstated, and the disclosed annual percentage rate is also overstated
but it is closer to the actual annual percentage rate than the rate
that would be considered accurate under paragraph (a)(4) of this section.
6-885
(b) Computation
tools.
(1) The Regulation Z Annual
Percentage Rate Tables produced by the Board may be used to determine
the annual percentage rate, and any rate determined from those tables
in accordance with the accompanying instructions complies with the
requirements of this section. Volume I of the tables applies to single-advance
transactions involving up to 480 monthly payments or 104 weekly payments.
It may be used for regular transactions and for transactions with any
of the following irregularities: an irregular first period, an irregular
first payment, and an irregular final payment. Volume II of the tables
applies to transactions involving multiple advances and any type of
payment or period irregularity.
(2) Creditors may use any other computation
tool in determining the annual percentage rate if the rate so determined
equals the rate determined in accordance with appendix J, within the
degree of accuracy set forth in paragraph (a) of this section.
6-886
(c) Single add-on rate
transactions. If a single add-on rate is applied to all transactions
with maturities up to 60 months and if all payments are equal in amount
and period, a single annual percentage rate may be disclosed for all
those transactions, so long as it is the highest annual percentage
rate for any such transaction.
(d) Certain transactions involving ranges of balances. For purposes of disclosing the annual percentage rate referred to
in section 226.17(g)(4)(Mail or Telephone Orders—Delay in Disclosures)
and (h)(Series of Sales—Delay in Disclosures), if the same finance
charge is imposed on all balances within a specified range of balances,
the annual percentage rate computed for the median balance may be
disclosed for all the balances. However, if the annual percentage
rate computed for the median balance understates the annual percentage
rate computed for the lowest balance by more than 8 percent of the
latter rate, the annual percentage rate shall be computed on whatever
lower balance will produce an annual percentage rate that does not
result in an understatement of more than 8 percent of the rate determined
on the lowest balance.
