Under Reg. Z, banks may use either the actuarial method or US Rule method to calculate APRs. If a bank uses the US Rule method and measures payment periods (for disclosure purposes) on a 30-day month, 360 year basis, and there are no "odd days" involved in the calculation, will the results arrived at be the same under both methods?

Also, if a bank uses the US Rule method, is it acceptable to verify the APR using the OCC APRWIN software, as long the disclosed figures fall within allowable tolerances, (i.e. the OCC APRWIN software uses the actuarial method)? If not, is there a verification tool out there that works under the US Rule Method?

No one can say with certainty what is or is not a proper calculation by the U.S. Rule method because the Fed does not provide formulas or examples. Further compounding the problem, loans that are serviced by the USR method generally DO NOT use a mortgage-like 30/360 accrual system, but rather actual/actual--i.e., daily simple interest (DSI). Regardless of how you calculate the loan payments, you are always entitled to use an actuarial APR calculation.

I have created all kinds of DSI calculators and would be happy to discuss such a product if you would like to contact me by email or phone.

Richard, thank you for your reply. As always, your advise is invaluable. I will likely contact your firm in the not too distant future to find out more about your product offerings.

If inconsiderate means not considerate, does invaluable mean not valuable?

Richard, you'll know it's him by the paper bag over his head!

My boss just came to me with an APR issue since it appears we are changing some of our rates. I am not quite sure what exactly we are changing.
Her question to me is: Is there a specific formula when it comes to calculating the APR? If we change the term from 12mths to 48mths if we change the balance from $1000.00 to $100,000.00 what are we basing the APR on.

When I look at our internal rate sheet we use an example for our Home Equity term loans with $10,000. for 5yrs. with a $50.00 doc fee which we disclose will impact the APR.

We want to make sure that our sheets are compliant.

I hope this question makes sense. If someone can please guide me in the right direction I would appreciate it.

Thanks,
lisa

I got my APR calculator from Richard at a class he taught in Normand back in 1995 (?). I'd be lost without it.

In reply to:

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Is there a specific formula when it comes to calculating the APR?

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Not that it will help you understand all the mechanics of it, look at Appendix J for closed end credit.

In reply to:

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I got my APR calculator from Richard at a class he taught in Normand back in 1995 (?).

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That's when I got mine.

I'm curious if you NCS'95 calculator owners have had to change the batteries more than once? I hear some really amazing tales of machines that go for up to 10 years on the original set of batteries.

No Way!!!! Was it the spring session? We had such a blast. I would love to hear Dombrow go over Reg Z again. Whatever happened to him? I heard he went to work for CFI.

If I remember right we got home and within the next week or 2, McVeigh bombed the Federal building.

Alan is with the NY FRB now.

Oh, there you are.

Really? Is he still "Mr Z"?

I can tell you that a few months ago my regulators had some questions on APR calculations. The OCC program showed some problems but my APRX from Richard said I was OK. I contacted Richard and Alan, was able to determine that there was an assumption made by the programs and that I was OK.

Alan isn't with the OCC but he'll always be respected for his "Z" work.

Mordac

I think the bombing was one week after we left.

I've been to Norman 3 times for the ABA schools. 1987 for the Bank Card School, 1995 for the Compliance School and 1997 for the Commercial Lending School (still haven't figured out why they sent me to that one since they laid off my whole department in 8/97)

Richard,

I had to change the batteries for the first time in my in April 2001.

Can the OCC APRWIN program be used on an APR with a 360/365 base?

Andy:

Apendix J? (Is that somewhere in Reg Z?) I don't know these regs by heart.
It appears that our internal rate sheet is out of compliance?

Thanks,
Lisa

Richard:

You appear to be the guru when it comes to APR's. I never really got a clear answer on if there is a forumula used specifically to calcualte APR's.

My boss wants to make sure that our internal rate sheet and the rates we are quoting customers are correct.

It appears that we are changing our rates. I am not sure if it is on our home equity loan product or what.

I posted the question on the 17th of Jan. and didn't really get a clear answer.

I am new to Compliance and never had to worry about the accuracy of the APR's, I just sold the loans....

If you can help me that would be great.

Thanks,
Lisa

Andy:

Please disregard my question about Apendix J. I found it.
However as usual it is written in legaleeze and as far as I am concerned very difficult to understand.

What is the most common way for banks to calculate APR's.
Again, please forgive me here, but I never had to worry about things like this. The APR's just always appeared on
my rate sheet.

I feel like I am reading another language when I look at some of these regulations. (Very frustrating)

Thanks,
Lisa

Appendix J is extremely difficult to understand and that is why Richard is a guru a this, he understands it. I would venture to say he is in a handful of people who understand the formulas and TILA.

There are specific formulas to be followed in calculating APRs. That is their purpose, consistency in calculation.

Software vendors provide the calculations when your forms are printed. Most commonly I'd say the OCC's program is used to verify these and many ABA compliance school grads also use Richard's APRX.

Lisa- Andy gave you the only clear answer there is. The mathematical formulas in Appendix J of Reg. Z are the legal authority on APR accuracy. Many vendors, including APR Systems, have programmed the logic, calendar and formulas from App. J into a variety of loan calculation software products. In addition, the OCC and APR Systems have programmed the official formulas into the industry standard APR audit tools. Each of these tools follows "the actuarial method" exclusively, and neither can be used to verify APRs for revolving lines of credit (like HELOCs).

Richard:

Thanks for your quick response. My thought was 2 fold here.
First we need to find out if our program includes ans APR system, which I would think they would have?
The second item would be to verify the APR's with the OCC or someone else.(Knowing that home equity lines are not verified)

Does this sound like the right road to travel?

Something else then based on your response, how would you verify home equity lines with the tiered rates? Can that be done?

Thanks,
Lisa

I am not Richard, but you can verify what is advertised and more importantly (TISA & TILA) what is actually charged based on a historical sampling of live accounts. Was interest accrued as it was supposed to be, were fees charged as they were supposed to, were all finance charge components properly accounted for...

Workpapers used by your regulator or in audit manuals you may have should guide you in these audits.

Can the OCC APRWIN program be used to verify an APR with a 365/360 base?

Do you mean a daily-simple-interest instalment loan?

This would be on a residential mortgage loan.