(a)
General rule. The annual percentage rate is a measure of the
cost of credit, expressed as a yearly rate. An annual percentage rate
shall be considered accurate if it is not more than one-eigth of 1
percentage point above or below the annual percentage rate determined
in accordance with this section.
31a An error in disclosure of the annual percentage rate or finance
charge shall not, in itself, be considered a violation of this regulation
if:
(1) The error resulted from
a corresponding error in a calculation tool used in good faith by
the creditor; and
(2)
Upon discovery of the error, the creditor promptly discontinues use
of that calculation tool for disclosure purposes, and notifies the
Board in writing of the error in the calculation tool.
(b) Annual percentage rate—in
general. Where one or more periodic rates may be used to compute
the finance charge, the annual percentage rate(s) to be disclosed
for purposes of sections 226.5a, 226.5b, 226.6, 226.7(a)(4) or (b)(4),
226.9, 226.15, 226.16, 226.26, 226.55, and 226.56 shall be computed
by multiplying each periodic rate by the number of periods in a year.
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(c) Optional effective annual
percentage rate for periodic statements for creditors offering open-end
plans subject to the requirements of section 226.5b. A creditor
offering an open-end plan subject to the requirements of section 226.5b
need not disclose an effective annual percentage rate. Such a creditor
may, at its option, disclose an effective annual percentage rate(s)
pursuant to section 226.7(a)(7) and compute the effective annual percentage
rate as follows:
(1) Solely periodic
rates imposed. If the finance charge is determined solely by
applying one or more periodic rates, at the creditor’s option, either:
(i) By multiplying each periodic rate by the number of periods in
a year; or
(ii) By
dividing the total finance charge for the billing cycle by 0 the sum
of the balances to which the periodic rates were applied and multiplying
the quotient (ex pressed as a percentage) by the number of
billing cycles in a year.
(2)
Minimum or fixed charge, but not transaction charge, imposed. If the finance charge imposed during the billing cycle is or includes
a minimum, fixed, or other charge not due to the application of a
periodic rate, other than a charge with respect to any specific transaction
during the billing cycle, by dividing the total finance charge for
the billing cycle by the amount of the balance(s) to which it is applicable
32 and multiplying the quotient (expressed as a
percentage) by the number of billing cycles in a year.
33 If there is no balance to which the finance charge is applicable,
an annual percentage rate cannot be determined under this section.
Where the finance charge imposed during the billing cycle is or includes
a loan fee, points, or similar charge that relates to opening, renewing,
or continuing an account, the amount of such charge shall not be included
in the calculation of the annual percentage rate.
(3)
Transaction
charge imposed. If the finance charge imposed during the billing
cycle is or includes a charge relating to a specific transaction during
the billing cycle (even if the total finance charge also includes
any other minimum, fixed, or other charge not due to the application
of a periodic rate), by dividing the total finance charge imposed
during the billing cycle by the total of all balances and other amounts
on which a finance charge was imposed during the billing cycle without
duplication, and multiplying the quotient (expressed as a percentage)
by the number of billing cycles in a year,
34 except that the annual percentage rate shall not be less than
the largest rate determined by multiplying each periodic rate imposed
during the billing cycle by the number of periods in a year.
35 Where the finance charge imposed during the
billing cycle is or includes a loan fee, points, or similar charge
that relates to the opening, renewing, or continuing an account, the
amount of such charge shall not be included in the calculation of
the annual percentage rate. See appendix F to this part regarding
determination of the denominator of the fraction under this paragraph.
(4) If the finance charge
imposed during the billing cycle is or includes a minimum, fixed,
or other charge not due to the application of a periodic rate and
the total finance charge imposed during the billing cycle does not
exceed 50 cents for a monthly or longer billing cycle, or the pro
rata part of 50 cents for a billing cycle shorter than monthly, at
the creditor’s option, by multiplying each applicable periodic rate
by the number of periods in a year, notwithstanding the provisions
of paragraphs (c)(2) and (c)(3) of this section.
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(d) Calculations where daily periodic rate
applied. If the provisions of paragraph (c)(1)(ii) or (c)(2)
of this section apply and all or a portion of the finance charge is
determined by the application of one or more daily periodic rates,
the annual percentage rate may be determined either:
(1) By dividing the total finance charge
by the average of the daily balances and multiplying the quotient
by the number of billing cycles in a year; or
(2) By dividing the total finance charge
by the sum of the daily balances and multiplying the quotient by 365.
