Our HELOC Agreement states the Daily Periodic Rate will use "365 (or 366 in a leap year)" in the calculation. Although Reg. Z states 365 and is silent on the use of 366, are we locked in to using 366 given the language in our agreement?

1026.14—Determination of annual percentage rate.
(d) Calculations where daily periodic rate applied. If the provisions of paragraph (c)(1)(ii) or (c)(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.

You are referring to how to calculate the APR and not how to disclose the periodic rate. Are you locked into actually applying the 1/366 rate in leap years? The answer would be yes, unless you want to breach your contract.


1026.2(a)(21) Periodic rate means a rate of finance charge that is or may be imposed by a creditor on a balance for a day, week, month, or other subdivision of a year.


Official Interpretation

2(a)(21) Periodic Rate

1. Basis. The periodic rate may be stated as a percentage (for example, 1 and ½% per month) or as a decimal equivalent (for example, .015 monthly). It may be based on any portion of a year the creditor chooses. Some creditors use 1/360 of an annual rate as their periodic rate. These creditors:

i. May disclose a 1/360 rate as a daily periodic rate, without further explanation, if it is in fact only applied 360 days per year. But if the creditor applies that rate for 365 days, the creditor must note that fact and, of course, disclose the true annual percentage rate.

ii. Would have to apply the rate to the balance to disclose the annual percentage rate with the degree of accuracy required in the regulation (that is, within 1/8th of 1 percentage point of the rate based on the actual 365 days in the year).