The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.
F E D E R A L R E S E R V E B ANK
O F N EW YORK
("Circular No. 7160l
|_ June b. 1973 J
Interpretation of Regulation Z
To All State Member Banks, and Others Concerned,
in the Second Federal Reserve District:
Printed below is the text o f an interpretation o f Regulation Z, effective June 1, 1973, which was issued
by the Board o f Governors o f the Federal Reserve System to clarify provisions relating to certain types o f
open end credit plans where daily periodic rates are used to calculate the annual percentage rate.
Additional copies o f this circular will be furnished upon request.
Alfred Hayes,
President.
[Reg. Z]
PAR T 226— T R U T H IN LENDING
Daily periodic rate; computation of the annual percentage rate
This interpretation relates to technical provisions of
Regulation Z which prescribe 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, such as a revolving charge
account at a department store, or a bank credit card or
check overdraft plan. The interpretation clarifies the
method o f computation o f the annual percentage rate
when daily periodic rates (rates that are applied to each
day’s outstanding balance) are used in figuring the
finance charge on the account.
§ 226.506 Daily periodic rate; computation o f the an
nual percentage rate
(a)
Under §§ 226.5(a)(l)(ii), (3)(i) and (3)(ii),
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 the
provisions of §§ 226.5(a)(l)(ii) or 226.5(a)(3)(i) apply,
where all or a portion of the finance charge is deter
mined by the application of one or more daily periodic
rates, the annual percentage rate may be determined (1)
by dividing the total finance charge by the average of
daily balances and multiplying the quotient by the
number of billing cycles in a year, or alternatively (2) by
dividing the total finance charge by the sum o f 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
the or more daily periodic rates, the phrase “ sum o f the
balances” in footnote 5a shall also mean the “ average of
daily balances” .
(Interprets and applies 15 U.S.C. 1606)
This interpretation is effective June 1, 1973.
By order of the Board o f Governors, May 22, 1973.
@FedFRASER