In determining the denominator
of the fraction under section 1026.14(c)(3), no amount will be used
more than once when adding the sum of the balances subject to periodic
rates to the sum of the amounts subject to specific transaction charges.
(Where a portion of the finance charge is determined by application
of one or more daily periodic rates, the phrase “sum of the balances”
shall also mean the “average of daily balances.”) In every case, the
full amount of transactions subject to specific transaction charges
shall be included in the denominator. Other balances or parts of balances
shall be included according to the manner of determining the balance
subject to a periodic rate, as illustrated in the following examples
of accounts on monthly billing cycles:
1. Previous
balance—none.
A specific transaction of $100 occurs
on the first day of the billing cycle. The average daily balance is
$100. A specific transaction charge of 3% is applicable to the specific
transaction. The periodic rate is 1½ % applicable to the average daily
balance. The numerator is the amount of the finance charge, which
is $4.50. The denominator is the amount of the transaction (which
is $100), plus the amount by which the balance subject to the periodic
rate exceeds the amount of the specific transactions (such excess
in this case is 0), totaling $100. The annual percentage rate is the
quotient (which is 4½ %) multiplied by 12 (the number of months in
a year), i.e., 54%.
2. Previous balance—$100.
A specific transaction of $100 occurs at the midpoint
of the billing cycle. The average daily balance is $150. A specific
transaction charge of 3% is applicable to the specific transaction.
The periodic rate is 1½ % applicable to the average daily balance.
The numerator is the amount of the finance charge which is $5.25.
The denominator is the amount of the transaction (which is $100),
plus the amount by which the balance subject to the periodic rate
exceeds the amount of the specific transaction (such excess in this
case is $50), totaling $150. As explained in example 1, the annual
percentage rate is 3½ % × 12 = 42%.
3. If, in
example 2, the periodic rate applies only to the previous balance,
the numerator is $4.50 and the denominator is $200 (the amount of
the transaction, $100, plus the balance subject only to the periodic
rate, the $100 previous balance). As explained in example 1, the annual
percentage rate is 2¼ % × 12 = 27%.
4. If, in
example 2, the periodic rate applies only to an adjusted balance (previous
balance less payments and credits) and the consumer made a payment
of $50 at the midpoint of the billing cycle, the numerator is $3.75
and the denominator is $150 (the amount of the transaction,
$100, plus the balance subject to the periodic rate, the $50 adjusted
balance). As explained in example 1, the annual percentage rate is
2½ % × 12 = 30%.
5. Previous balance—$100.
A specific transaction (check) of $100 occurs at
the midpoint of the billing cycle. The average daily balance is $150.
The specific transaction charge is $.25 per check. The periodic rate
is 1½ % applied to the average daily balance. The numerator is the
amount of the finance charge, which is $2.50 and includes the $.25
check charge and the $2.25 resulting from the application of the periodic
rate. The denominator is the full amount of the specific transaction
(which is $100) plus the amount by which the average daily balance
exceeds the amount of the specific transaction (which in this case
is $50), totaling $150. As explained in example 1, the annual percentage
rate would be 1⅔% × 12 = 20%.
6. Previous balance—none.
A specific transaction of $100 occurs at the midpoint
of the billing cycle. The average daily balance is $50. The specific
transaction charge is 3% of the transaction amount or $3.00. The periodic
rate is 1½ % per month applied to the average daily balance. The numerator
is the amount of the finance charge, which is $3.75, including the
$3.00 transaction charge and $.75 resulting from application of the
periodic rate. The denominator is the full amount of the specific
transaction ($100) plus the amount by which the balance subject to
the periodic rate exceeds the amount of the transaction ($0). Where
the specific transaction amount exceeds the balance subject to the
periodic rate, the resulting number is considered to be zero rather
than a negative number ($50 − $100 = −$50). The denominator, in this
case, is $100. As explained in example 1, the annual percentage rate
is 3¾ % × 12 = 45%.
