Appendix F to Part 1026 - Optional Annual Percentage Rate Computations for Creditors Offering Open-End Credit Plans Secured by a Consumer's Dwelling
12:9.0.1.1.1.9.1.1.6 : Appendix F
Appendix F to Part 1026 - Optional Annual Percentage Rate
Computations for Creditors Offering Open-End Credit Plans Secured
by a Consumer's Dwelling
In determining the denominator of the fraction under §
1026.14(c)(3), no amount will be used more than once when adding
the sum of the balances subject to periodic rates to the sum of the
amounts subject to specific transaction charges. (Where a portion
of the finance charge is determined by application of one or more
daily periodic rates, the phrase “sum of the balances” shall also
mean the “average of daily balances.”) In every case, the full
amount of transactions subject to specific transaction charges
shall be included in the denominator. Other balances or parts of
balances shall be included according to the manner of determining
the balance subject to a periodic rate, as illustrated in the
following examples of accounts on monthly billing cycles:
1. Previous balance - none.
A specific transaction of $100 occurs on the first day of the
billing cycle. The average daily balance is $100. A specific
transaction charge of 3% is applicable to the specific transaction.
The periodic rate is 1 1/2% applicable to the average daily
balance. The numerator is the amount of the finance charge, which
is $4.50. The denominator is the amount of the transaction (which
is $100), plus the amount by which the balance subject to the
periodic rate exceeds the amount of the specific transactions (such
excess in this case is 0), totaling $100.
The annual percentage rate is the quotient (which is 4 1/2%)
multiplied by 12 (the number of months in a year), i.e., 54%.
2. Previous balance - $100.
A specific transaction of $100 occurs at the midpoint of the
billing cycle. The average daily balance is $150. A specific
transaction charge of 3% is applicable to the specific transaction.
The periodic rate is 1 1/2% applicable to the average daily
balance. The numerator is the amount of the finance charge which is
$5.25. The denominator is the amount of the transaction (which is
$100), plus the amount by which the balance subject to the periodic
rate exceeds the amount of the specific transaction (such excess in
this case is $50), totaling $150. As explained in example 1, the
annual percentage rate is 3 1/2% × 12 = 42%.
3. If, in example 2, the periodic rate applies only to the
previous balance, the numerator is $4.50 and the denominator is
$200 (the amount of the transaction, $100, plus the balance subject
only to the periodic rate, the $100 previous balance). As explained
in example 1, the annual percentage rate is 2 1/4% × 12 = 27%.
4. If, in example 2, the periodic rate applies only to an
adjusted balance (previous balance less payments and credits) and
the consumer made a payment of $50 at the midpoint of the billing
cycle, the numerator is $3.75 and the denominator is $150 (the
amount of the transaction, $100, plus the balance subject to the
periodic rate, the $50 adjusted balance). As explained in example
1, the annual percentage rate is 2 1/2% × 12 = 30%.
5. Previous balance - $100.
A specific transaction (check) of $100 occurs at the midpoint of
the billing cycle. The average daily balance is $150. The specific
transaction charge is $.25 per check. The periodic rate is 1 1/2%
applied to the average daily balance. The numerator is the amount
of the finance charge, which is $2.50 and includes the $.25 check
charge and the $2.25 resulting from the application of the periodic
rate. The denominator is the full amount of the specific
transaction (which is $100) plus the amount by which the average
daily balance exceeds the amount of the specific transaction (which
in this case is $50), totaling $150. As explained in example 1, the
annual percentage rate would be 1-2/3% × 12 = 20%.
6. Previous balance - none.
A specific transaction of $100 occurs at the midpoint of the
billing cycle. The average daily balance is $50. The specific
transaction charge is 3% of the transaction amount or $3.00. The
periodic rate is 1 1/2% per month applied to the average daily
balance. The numerator is the amount of the finance charge, which
is $3.75, including the $3.00 transaction charge and $.75 resulting
from application of the periodic rate. The denominator is the full
amount of the specific transaction ($100) plus the amount by which
the balance subject to the periodic rate exceeds the amount of the
transaction ($0). Where the specific transaction amount exceeds the
balance subject to the periodic rate, the resulting number is
considered to be zero rather than a negative number ($50 − $100 =
−$50). The denominator, in this case, is $100. As explained in
example 1, the annual percentage rate is 3 3/4% × 12 = 45%.