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F ederal

reserve

Ba n k

DALLAS, TEXAS

of

Dallas

75222

Circular No. 73-132
June 6, 1973

INTERPRETATION OF REGULATION Z

To All Banks, Other Creditors and Others
Concerned in the Eleventh Federal Reserve District:

Enclosed is an interpretation of Regulation Z prescribing
the procedures to be used by a creditor in computing the annual
percentage rate disclosed to a customer on his billing statement
on an open end credit account.
Yours very truly,
P. E. Coldwell,
President
Enclosure

This publication was digitized and made available by the Federal Reserve Bank of Dallas' Historical Library (FedHistory@dal.frb.org)

BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM

TRUTH IN LENDING

INTERPRETATION OF REGULATION Z

SECTION 226.506 D AILY PERIODIC RATE;
COMPUTATION OF THE A N N U A L
PERCENTAGE RATE
(a) Under §§226.5(a) (1) (ii), (3) (i), and
(3) (ii), the quotient used in computing the annual
percentage rate in open end credit accounts must
be multiplied “by the number of billing cycles in a
year.” The question arises as to the method which
should be used to compute the annual percentage
rate under those sections where a daily periodic
rate (or rates) is used.
(b) In any open end credit account to which
th e p r o v is i o n s o f § § 2 2 6 . 5 ( a ) ( 1 ) ( i i ) or
226.5(a) (3) (i) apply, where all or a portion of
the finance charge is determined by the application
of one or more daily periodic rates, the annual per­
centage rate may be determined (1) by dividing
the total finance charge by the average of daily

balances and multiplying the quotient by the num­
ber of billing cycles in a year, or alternatively (2)
by dividing the total finance charge by the sum of
the daily balances and multiplying the quotient
by 365.
(c)
In any open end credit account to which
the provisions of §226.5 (a ) (3) (ii) apply, where
a portion of the finance charge is determined by
application of one or more daily periodic rates, the
phrase “sum of the balances” in footnote 5a shall
also mean the “average of daily balances.”
(Interprets and applies 15 U.S.C. 1606)

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