Source: https://www.bankersonline.com/regulations/12-1026-022
Timestamp: 2019-08-24 15:35:49
Document Index: 245622616

Matched Legal Cases: ['§1026', '§ 1026', '§1026', '§1026', '§1026', '§1026']

1026.22—Determination of annual percentage rate. | Bankers Online
1026.22—Determination of annual percentage rate.
For the wording of this section in effect before October 3, 2015, click HERE.
(b) Computational tools.
(c) Single add-on rate transactions.
(d) Certain transactions involving ranges of balances.
(ii)(A) The disclosed finance charge would be considered accurate under §1026.18(d)(1) or § 1026.38(o)(2), as applicable; or
22(a) Accuracy of Annual Percentage Rate
Paragraph 22(a)(1)
4. Basis for calculations. When a transaction involves “step rates” or “split rates”—that is, different rates applied at different times or to different portions of the principal balance—a single composite annual percentage rate must be calculated and disclosed for the entire transaction. Assume, for example, a step-rate transaction in which a $10,000 loan is repayable in 5 years at 10 percent interest for the first 2 years, 12 percent for years 3 and 4, and 14 percent for year 5. The monthly payments are $210.71 during the first 2 years of the term, $220.25 for years 3 and 4, and $222.59 for year 5. The composite annual percentage rate, using a calculator with a “discounted cash flow analysis” or “internal rate of return” function, is 10.75 percent.
5. Good faith reliance on faulty calculation tools. Section 1026.22(a)(1) absolves a creditor of liability for an error in the annual percentage rate or finance charge that resulted from a corresponding error in a calculation tool used in good faith by the creditor. Whether or not the creditor's use of the tool was in good faith must be determined on a case-by-case basis, but the creditor must in any case have taken reasonable steps to verify the accuracy of the tool, including any instructions, before using it. Generally, the creditor is not liable only for errors directly attributable to the calculation tool itself, including software programs; §1026.22(a)(1) is not intended to absolve a creditor of liability for its own errors, or for errors arising from improper use of the tool, from incorrect data entry, or from misapplication of the law.
Paragraph 22(a)(2)
1. Regular transactions. The annual percentage rate for a regular transaction is considered accurate if it varies in either direction by not more than 1/8 >of 1 percentage point from the actual annual percentage rate. For example, when the exact annual percentage rate is determined to be 10 1/8%, a disclosed annual percentage rate from 10% to 10 1/4%, or the decimal equivalent, is deemed to comply with the regulation.
Paragraph 22(a)(3)
22(a)(4) Mortgage Loans
22(a)(5) Additional Tolerance for Mortgage Loans
1. Example. This paragraph contains an additional tolerance for a disclosed annual percentage rate that is incorrect but is closer to the actual annual percentage rate than the rate that would be considered accurate under the tolerance in §1026.22(a)(4). To illustrate: in an irregular transaction subject to a 1/4 of 1 percentage point tolerance, if the actual annual percentage rate is 9.00 percent and a $75 omission from the finance charge corresponds to a rate of 8.50 percent that is considered accurate under §1026.22(a)(4), a disclosed APR of 8.65 percent is within the tolerance in §1026.22(a)(5). In this example of an understated finance charge, a disclosed annual percentage rate below 8.50 or above 9.25 percent will not be considered accurate.
22(b) Computation Tools
Paragraph 22(b)(1)
1. Bureau tables. Volumes I and II of the Bureau's Annual Percentage Rate Tables provide a means of calculating annual percentage rates for regular and irregular transactions, respectively. An annual percentage rate computed in accordance with the instructions in the tables is deemed to comply with the regulation, even where use of the tables produces a rate that falls outside the general standard of accuracy. To illustrate:Volume I may be used for single advance transactions with completely regular payment schedules or with payment schedules that are regular except for an odd first payment, odd first period or odd final payment. When used for a transaction with a large final balloon payment, Volume I may produce a rate that is considerably higher than the exact rate produced using a computer program based directly on Appendix J. However, the Volume I rate—produced using certain adjustments in that volume—is considered to be in compliance.
Paragraph 22(b)(2)
22(c) Single Add-On Rate Transactions
22(d) Certain Transactions Involving Ranges of Balances
‹ 1026.21—Treatment of credit balances.
1026.22 - Determination of Annual Percentage Rate (before 10/3/15) ›