Calculating the Annual Percentage Rate (APR) should be a routine function after age 50. This is the age of the Truth-In-Lending Act (TILA). But the issue of calculating the APR when it comes to odd-day interest does not seem to go away.
âOdd Daysâ is a reference to the time interval that runs on a closed-maturity precomputed loan when the first payment due date does not âmatchâ the contract date. For example, if a one-year loan is granted on March 1, but the first payment due date is April 5, the APR calculation may take into account that the first payment due date is one month plus 5 days after the contract date. and interest runs for these five days. But, is it necessary? (We also know that TILA lets us ignore that some months have 30 days or 31, or 28 or even 29 days.) And, anyway, doesn’t the software take these facts into account when determining the APR? Probably.
However, the duration of such a loan does not fit into a pretty box. And, when a regulator or the plaintiff’s attorney uses the Office of the Comptroller of the Currency’s APRWIN program to verify the disclosure of the APR, if some entries are selected (as opposed to others), the result may generate an over-billing or under-billing error of the APR. So now what do we do?
Well, after we catch our breath we note that the OCC APRWIN program is only a tool and is not a legal authority to determine the actual APR. Legal authority can be found in section 1026.17 (c) of Regulation Z and Appendix J. Appendix J provides equations, terms, definitions, instructions and related examples for calculating APRs. I don’t have enough brain material to explain Schedule J. But, I can offer this explanation of how I think it works:
- Reg Z. Section 1026.17 (c) (4) provides that by making calculations and disclosures, creditors can ignore irregularities in the first payment period within certain limits. For an operation with a loan term of less than 1 year, an initial period of at most 6 days less or 13 days more than a regular period may be waived. For longer term loans, the periods are even longer.
- Thus, it is perfectly appropriate to ignore the odd 5-day (longer) first payment of the above loan offered by the calendar function of the APRWIN OCC program and instead use the provided 0 odd-day function. by the OCC APRWIN program.
- The OCC APRWIN program incorporates most of the rules and equations found in Appendix J. However, there appears to be a lack of rules determining the âunit periodâ to be used in the APR calculations; and since section 1026.17 (c) (4) allows creditors to override the 5 odd day irregularity, the calculation of the “unit period” in the OCC APRWIN program may not align with your software. .
- So if your software does not, that is, it does not choose to recognize the 5 odd days, but the disclosure is compared to an OCC APRWIN scan that chooses the 5 odd days, the APR Disclosed in OCC Program Results APRWIN will not agree with your disclosure.
- Alternatively, if your program chooses to recognize the 5 odd days, but the OCC APRWIN program analysis entry does not choose this option, the APR disclosure will display an error message.
- That said, that doesn’t mean your disclosure is necessarily out of tolerance or in error. This is probably not the case. But, when your contract’s APR disclosure and APRWIN OCC exit don’t match, it’s not easy to explain why to your regulator or a plaintiff’s lawyer.
Practice pointer: The take-home message from this blog is to make sure that you and your software vendor are on the same page when it comes to odd-day calculations in closed pre-calculated loans.