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U.S. Code as of:
01/19/04
Section 1606. Determination of annual percentage rate
(a) "Annual percentage rate" defined
The annual percentage rate applicable to any extension of
consumer credit shall be determined, in accordance with the
regulations of the Board,
(1) in the case of any extension of credit other than under an
open end credit plan, as
(A) that nominal annual percentage rate which will yield a
sum equal to the amount of the finance charge when it is
applied to the unpaid balances of the amount financed,
calculated according to the actuarial method of allocating
payments made on a debt between the amount financed and the
amount of the finance charge, pursuant to which a payment is
applied first to the accumulated finance charge and the balance
is applied to the unpaid amount financed; or
(B) the rate determined by any method prescribed by the Board
as a method which materially simplifies computation while
retaining reasonable accuracy as compared with the rate
determined under subparagraph (A).
(2) in the case of any extension of credit under an open end
credit plan, as the quotient (expressed as a percentage) of the
total finance charge for the period to which it relates divided
by the amount upon which the finance charge for that period is
based, multiplied by the number of such periods in a year.
(b) Computation of rate of finance charges for balances within a
specified range
Where a creditor imposes the same finance charge for balances
within a specified range, the annual percentage rate shall be
computed on the median balance within the range, except that if the
Board determines that a rate so computed would not be meaningful,
or would be materially misleading, the annual percentage rate shall
be computed on such other basis as the Board may be regulation
require.
(c) Allowable tolerances for purposes of compliance with disclosure
requirements
The disclosure of an annual percentage rate is accurate for the
purpose of this subchapter if the rate disclosed is within a
tolerance not greater than one-eighth of 1 per centum more or less
than the actual rate or rounded to the nearest one-fourth of 1 per
centum. The Board may allow a greater tolerance to simplify
compliance where irregular payments are involved.
(d) Use of rate tables or charts having allowable variance from
determined rates
The Board may authorize the use of rate tables or charts which
may provide for the disclosure of annual percentage rates which
vary from the rate determined in accordance with subsection
(a)(1)(A) of this section by not more than such tolerances as the
Board may allow. The Board may not allow a tolerance greater than 8
per centum of that rate except to simplify compliance where
irregular payments are involved.
(e) Authorization of tolerances in determining annual percentage
rates
In the case of creditors determining the annual percentage rate
in a manner other than as described in subsection (d) of this
section, the Board may authorize other reasonable tolerances.
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