§1606 Determination of annual percentage rate

Summary

Lenders must figure the annual percentage rate (APR) using rules the Bureau writes. For loans that are not open-end, APR is the yearly interest rate that makes the total finance charge equal the amount you are charged when payments are split by the actuarial method (each payment goes first to the accumulated finance charge, then to the unpaid principal). The Bureau can let lenders use a simpler method if it gives nearly the same result. For open-end plans (like many credit cards), APR is the finance charge for one billing period divided by the balance that charge is based on, then multiplied by how many such periods are in a year. If the same finance charge applies to a range of balances, use the middle balance unless the Bureau says another way is better. A disclosed APR is acceptable if it is within one-eighth of 1 percent more or less than the true rate or if it is rounded to the nearest one-fourth of 1 percent; the Bureau can allow a larger tolerance for irregular payments. The Bureau may also allow rate tables or charts that differ by allowed tolerances, but not by more than 8 percent of the rate except for irregular payments, and it may permit other reasonable tolerances for other methods.