(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 ⅛th of
1 percentage point above or below the annual percentage rate determined
in accordance with this section. An error in disclosure of the annual
percentage rate or finance charge shall not, in itself, be considered
a violation of this part 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 Bureau 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 1026.60, 1026.40, 1026.6, 1026.7(a)(4) or (b)(4), 1026.9,
1026.15, 1026.16, 1026.26, 1026.55, and 1026.56 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
credit plans secured by a consumer’s dwelling. A creditor
offering an open-end plan subject to the requirements of section 1026.40
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 1026.7(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 the sum of the balances to which the periodic
rates were applied and multiplying the quotient (expressed 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 and multiplying the quotient (expressed as a percentage)
by the number of billing cycles in a year. 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, 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. 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.
