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Tolerance for an Understated APR Violation

Question: 
What is the tolerance for an understated APR violation?
Answer: 

Answer by Jim Bedsole: For open-end credit, there is no tolerance. For closed-end credit, it varies depending on the type of transaction. See Reg Z Section 226.22 and Official Staff Commentary for more detail.

Answer: 

Answer by Richard Insley: The basic disclosure tolerance for both open-end and closed-end credit is 1/8% (0.125%) above or below the precise APR. Certain closed-end APR disclosures receive 1/4% (0.25%) disclosure tolerance. See Section 226.22 for details about disclosure tolerances and the interagency enforcement policy for details about reimbursement tolerances.

Answer: 

Answer by Jim Bedsole: Richard is correct. I misread something in the FDIC Compliance Exam manual. There is no finance charge tolerance for open-end credit, but there is an APR tolerance.

First published on BankersOnline.com 9/01/08

First published on 09/01/2008

Filed under: 
Filed under compliance as: 

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