Sec. 226.14 Determination of annual percentage
rate.
(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 \1/8\
of 1 percentage point above or below the annual percentage rate determined
in accordance with this section.31a
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 for Secs. 226.5a
and 226.5b disclosures, for initial disclosures and for advertising purposes.
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 Secs. 226.5a,
226.5b, 226.6, and 226.16 shall be computed by multiplying each periodic
rate by the number of periods in a year.
(c) Annual percentage rate for periodic statements.
The annual percentage rate(s) to be disclosed for purposes of Sec. 226.7(d)
shall be computed by multiplying each periodic rate by the number of periods
in a year and, for purposes of Sec. 226.7(g), shall be determined as follows:
(1) 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) 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 applicable32 and multiplying the quotient (expressed
as a percentage) by the number of billing cycles in a year.33
32
If there is no balance to which the finance charge is applicable, an annual
percentage rate cannot be determined under this section.
33
Where the finance charge imposed during the billing cycle is or includes
a loan fee, points, or similar charge that relates to the opening of the
account, the amount of such charge shall not be included in the calculation
of the annual percentage rate.
(3) 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
34 See appendix F regarding determination of the denominator of
the fraction under this paragraph.
35
See footnote 33.
(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 (3) of this section.
(d) Calculations where daily periodic rate
applied. If the provisions of paragraph (c)(1)(ii) or (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.
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