Odd Days Can Be Interesting

Finance charge errors are the most common violation identified by examiners in the compliance examination. Odd days interest can be a cause of finance charge problems. The regulation, 12 CFR ?226.17(c)(4), allows the creditor to disregard odd days for the purposes of making calculations and disclosures.

For example, for loans of less than one year but more than six days, ?226.17(c)(4) permits the creditor to disregard the effect of six days shorter or 13 days longer than a regular payment period. For loans of at least one year but less than 10 years, the regulation permits disregarding the effect of 11 days shorter or 21 days longer than a regular payment period. As long as the number or short or long days is less than or equal to the boundaries established by the regulation, the practical effect is to disregard these "odd days" and treat the entire transaction as being comprised of regular payment period units. If the number of short or long days exceeds the number permitted by ?226.17(c)(4), the finance charge related to the entire short or long days period must be taken into account for calculations and disclosures.

Unfortunately, some calculation machines lack the proper respect for these "odd days" boundaries and treat excessive days as within the odd days interest tolerance. This is a particular problem with tools currently used in many finance companies. If you have a finance company affiliate, it's worth checking out their odd days calculations. Design some sample loans that are inside and outside of the odd days boundaries and test the programs being used. The finance company may think you odd, but it won't take a day and the results may be interesting.

Copyright © 1996 Compliance Action. Originally appeared in Compliance Action, Vol. 1, No. 13, 8/96