In determining the denominator
of the fraction under section
226.14(c)(3), no amount will be used
more than once when adding the sum of the balances
1 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 percent is applicable to the specific transaction. The periodic
rate is 1½ percent 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
percent) multiplied by 12 (the number of months in a year), i.e.,
54 percent.
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 percent is applicable to the specific transaction.
The periodic rate is 1½ percent 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 percent × 12 = 42 percent.
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 percent × 12 = 27 percent.
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 percent × 12 = 30 percent.
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 percent 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 percent × 12 = 20 percent.
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 percent of the transaction amount or $3.00. The periodic
rate is 1½ percent 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 percent × 12 = 45 percent.
