I am running our periodic check of our TIL disclosures vs the FFIEC APR tool. This is the loan I entered:

Amount financed: $1475
Disclosed APR 20.706
Disclosed Finance Charge 151.45
Single payment 1626.45
loan date: 1/22/2021
payment date 7/22/21

And I am getting the result that our APR is overstated by .1704%.

Now, I did some calculations and figured out the issue. The finance charge is 10.268% of the amount financed. Since the loan term is 6 months, 10.268 *2 = 20.5356%. This is what FFIEC APR tool is saying the APR should be.

Our system is looking at it as 181 days out of 354 (feb and its rebel 28 days being included adds some additonal compexity). So the 10.268 is multiplied by 2.016 and that's where we got out 20.706% APR.

My problem now is trying to decipher appendix J of Reg Z. One section makes me think there is just one way to calculate it, one makes me think there are alternates allowed. Simply put: is our alternative method allowable?

If you do it as 181 actual days - you get 20.706% If you do it as 6 months, you get 20.5356%

But are both acceptable for Reg Z compliance?

What you have just discovered is that there is no single "truth" in lending.

Paragraph b(5)(vi) of Appendix J says that the time base (unit period) for the APR calculation can be 6/12 of a year or 181/365 of a year. This option only applies when the term of the single pmt loan is a multiple of months. Since your loan originates on the 22nd of one month and matures on the 22nd of another month, you are free to use this option -- dealer's choice.

When you use "the tool", select "actutal days" for the payment frequency and enter 181 days. DO NOT feed it dates or you will get the false message "Loan term with equal months may not use this payment frequency." That message and the tool's refusal to perform the calculation does not comply with Appendix J. The tool is not the regulation -- Appendix J is.

Another point with respect to the FFIEC APR tool - don't try to use it if you use the US method of calculating APR instead of the actuarial method.

Does anyone knowingly use the U.S. Rule method to calculate APRs? Arguably, for most single payment loans, the two methods should yield identical results--rendering the U.S. Rule method a meaningless distinction. For installment loans, the U.S. Rule can (must, in some cases) be used to calculate interest, but Reg. Z gives you no math or examples for calculating U.S. Rule APRs.

I know several student lenders that use the US Rule, as it accommodates deferral periods better than the actuarial method.

How will they defend the accuracy of these U.S. Rule APRs if sued or challenged by a regulator (or licensing authority)? Using the U.S. Rule to calculate interest and payment schedules is one thing--calculating the APR is another matter.