(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 part. An error in disclosure of
the annual percentage rate or finance charge shall not, in itself,
be considered a violation of this part if:
(i) The
error resulted from a corresponding error in a calculation tool used
in good faith by the creditor; and
(ii) 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.
(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. For purposes of this paragraph
(a)(3), an irregular transaction is one that includes one or more
of the following features: multiple advances, irregular payment periods,
or irregular payment amounts (other than an irregular first period
or an irregular first or final payment).
6-5884.1
(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 1026.18(d)(1) or section 1026.38(o)(2),
as applicable; or
(B)
For purposes of rescission, if the disclosed finance charge would
be considered accurate under section 1026.23(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 1026.18(d)(1) or section 1026.38(o)(2), as applicable, or
section 1026.23(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.
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(b) Computation tools.
(1) The Regulation Z Annual Percentage
Rate Tables produced by the Bureau 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 to this part,
within the degree of accuracy set forth in paragraph (a) of this section.
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(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 1026.17(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.
