12 C.F.R. § 226.22

Determination of annual percentage rate

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(a) Accuracy of annual percentage rate. (1) The annual percentage rate is a measure of the cost of credit, expressed as a yearly rate, that relates the amount and timing of value received by the consumer to the amount and timing of payments made. The annual percentage rate shall be determined in accordance with either the actuarial method or the United States Rule method. Explanations, equations and instructions for determining the annual percentage rate in accordance with the actuarial method are set forth in appendix J to this regulation. 45d

45d An error in disclosure of the annual percentage rate or finance charge shall not, in itself, be considered a violation of this regulation if: (1) The error resulted from a corresponding error in a calculation tool used in good faith by the creditor; and (2) upon discovery of the error, the creditor promptly discontinues use of that calculation tool for disclosure purposes and notifies the Board in writing of the error in the calculation tool.

(2) As a general rule, the annual percentage rate shall be considered accurate if it is not more than 1/8 of 1 percentage point above or below the annual percentage rate determined in accordance with paragraph (a)(1) of this section.

(3) In an irregular transaction, the annual percentage rate shall be considered accurate if it is not more than 1/4 of 1 percentage point above or below the annual percentage rate determined in accordance with paragraph (a)(1) of this section. 46

46 For purposes of paragraph (a)(3) of this section, an irregular transaction is one that includes one or more of the following features: multiple advances, irregular payment periods, or irregular payment amounts (other than an irregular first period or an irregular first or final payment).

(4) Mortgage loans. If the annual percentage rate disclosed in a transaction secured by real property or a dwelling varies from the actual rate determined in accordance with paragraph (a)(1) of this section, in addition to the tolerances applicable under paragraphs (a)(2) and (3) of this section, the disclosed annual percentage rate shall also be considered accurate if:

(i) The rate results from the disclosed finance charge; and

(ii)(A) The disclosed finance charge would be considered accurate under § 226.18(d)(1); or

(B) For purposes of rescission, if the disclosed finance charge would be considered accurate under § 226.23(g) or (h), whichever applies.

(5) Additional tolerance for mortgage loans. In a transaction secured by real property or a dwelling, in addition to the tolerances applicable under paragraphs (a)(2) and (3) of this section, if the disclosed finance charge is calculated incorrectly but is considered accurate under § 226.18(d)(1) or § 226.23(g) or (h), the disclosed annual percentage rate shall be considered accurate:

(i) If the disclosed finance charge is understated, and the disclosed annual percentage rate is also understated but it is closer to the actual annual percentage rate than the rate that would be considered accurate under paragraph (a)(4) of this section;

(ii) If the disclosed finance charge is overstated, and the disclosed annual percentage rate is also overstated but it is closer to the actual annual percentage rate than the rate that would be considered accurate under paragraph (a)(4) of this section.

(b) Computation tools. (1) The Regulation Z Annual Percentage Rate Tables produced by the Board may be used to determine the annual percentage rate, and any rate determined from those tables in accordance with the accompanying instructions complies with the requirements of this section. Volume I of the tables applies to single advance transactions involving up to 480 monthly payments or 104 weekly payments. It may be used for regular transactions and for transactions with any of the following irregularities: an irregular first period, an irregular first payment, and an irregular final payment. Volume II of the tables applies to transactions involving multiple advances and any type of payment or period irregularity.

(2) Creditors may use any other computation tool in determining the annual percentage rate if the rate so determined equals the rate determined in accordance with appendix J, within the degree of accuracy set forth in paragraph (a) of this section.

(c) Single add-on rate transactions. If a single add-on rate is applied to all transactions with maturities up to 60 months and if all payments are equal in amount and period, a single annual percentage rate may be disclosed for all those transactions, so long as it is the highest annual percentage rate for any such transaction.

(d) Certain transactions involving ranges of balances. For purposes of disclosing the annual percentage rate referred to in § 226.17(g)(4) (Mail or telephone orders—delay in disclosures) and (h) (Series of sales—delay in disclosures), if the same finance charge is imposed on all balances within a specified range of balances, the annual percentage rate computed for the median balance may be disclosed for all the balances. However, if the annual percentage rate computed for the median balance understates the annual percentage rate computed for the lowest balance by more than 8 percent of the latter rate, the annual percentage rate shall be computed on whatever lower balance will produce an annual percentage rate that does not result in an understatement of more than 8 percent of the rate determined on the lowest balance.

[46 FR 20892, Apr. 7, 1981, as amended at 47 FR 756, Jan. 7, 1982; 48 FR 14886, Apr. 6, 1983; 61 FR 49246, Sept. 19, 1996]

Notes of Decisions

Cited in 30 cases (1 in the last 5 years), 1990–2024 · leading case: Raceway Ford Cases, 385 P.3d 397 (Cal. 2016).

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Raceway Ford Cases, 385 P.3d 397 (Cal. 2016). · cites it 3× “" ( 12 C.F.R. § 226.22 (a)(1) (2016).) A buyer is entitled to rescission and restitution for certain violations of ASFA.”

Theresa L. Cannon Williams, on Behalf of Herself & All Others Similarly Situated, & Lois Reed v. Chartwell Fin. Servs., Ltd., 204 F.3d 748 (7th Cir. 2000). · cites it 5× “” 12 C.F.R. § 226.22 (a)(2). This provision indicates that in some circumstances, overdisclosure of the APR can constitute a violation of TILA.”

Nelson v. Pearson Ford Co., 186 Cal. App. 4th 983 (Cal. Ct. App. 2010). · cites it 4× “” ( 12 C.F.R. § 226.22 (a)(1) (2010).) As “the single most useful disclosure mandated by the Act,” the APR “is a derived figure, calculated from (i) the amount of the finance charge, (ii) the amount of credit extended, and (iii) the term of the extension of credit—the time…”

Bonte v. U.S. Bank, N.A., 624 F.3d 461 (7th Cir. 2010). “See 12 C.F.R. § 226.22 (a)(1) (“The annual percentage rate is a measure of the cost of credit, expressed as a yearly rate[.”

James v. Nat'l Fin., LLC, 132 A.3d 799 (Del. Ch. 2016). · cites it 2× “12 C.F.R. § 226.22 (a)(2). There is a statutory defense for inadvertent mistakes made in good faith: A creditor or assignee may not be held liable in any action brought under this section or section 1635 of this title for a violation of this subchapter if the creditor or…”

Gonzales v. Assocs. Fin. Serv. Co. of Kansas, Inc., 967 P.2d 312 (Kan. 1998). · cites it 2× “12 C.F.R. § 226.22 (a)(1). Thus, the origination fee is properly reflected in the APR as a 1.”

Est. of Baxter v. Shaw Assocs., Inc., 797 So. 2d 396 (Miss. Ct. App. 2001). “12 C.F.R. § 226.22 (a)(1). The referenced Appendix J now states these rules: (2) Under the actuarial method, at the end of each unit-period (or fractional unit-period) the unpaid balance of the amount financed is increased by the finance charge earned during that period and is…”

Velazquez v. GMAC Mortg. Corp., 605 F. Supp. 2d 1049 (C.D. Cal. 2008). “”); 12 C.F.R. § 226.22 (a) (“The annual percentage rate is a measure of the cost of credit, expressed as a yearly rate, that relates the amount and timing of value received by the consumer to the amount and timing of payments made.”

Consol. Bank, N.A. v. United States Dep't of Treasury, 118 F.3d 1461 (11th Cir. 1997). “18 (d), and to disclose an accurate annual percentage rate on residential mortgage loans, 12 C.F.R. § 226.22 (a). OCC requested that the administrative law judge (“ALJ”) issue a final cease and desist order against Consolidated and an order requiring Consolidated to pay an…”

Ramsey v. Vista Mortg. Corp. (In Re Ramsey), 176 B.R. 183 (9th Cir. BAP 1994). · cites it 2× “§ 1606 (c) (1993); 12 C.F.R. § 226.22 (a)(2). Although there is no record of what the actual APR on the loan was, we assume arguendo that it was more than Jé of a percent lower than the stated amount.”

Moore v. Flagstar Bank, 6 F. Supp. 2d 496 (E.D. Va. 1997). “See 12 C.F.R. § 226.22 (a)(1) (1994) (stating that the annual percentage rate “is a measure of the cost of credit .”

Fidler v. Cent. Coop. Bank (In Re Fidler), 210 B.R. 411 (Bankr. D. Mass. 1997). “” 12 C.F.R. § 226.22 (a). 12 . Regulation Z defines "finance charge” as "the cost of consumer credit as a dollar amount.”

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— 12 C.F.R. § 226.22(a) — 1 case

Barber v. Knox Cnty. Sch. Employees Credit Union (In Re Cox), 114 B.R. 165 (Bankr. C.D. Ill. 1990).

— 12 C.F.R. § 226.22(a)(2) — 1 case

Charles v. First Nat'l Bank (Ill. App. Ct. 2002).

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