Reg Z Calculation

Lending Lending Reg Z Calculation

1. Introduction

This document provides technical details and operational guidance for the Reg Z Calculation reports (LN35119-1, LN3511-2, and CCMARPRN) within the Flex system. These reports are crucial for monitoring and ensuring compliance with the 36% effective rate limit on active military loans, as mandated by the Military Annual Percentage Rate (MAPR) rule under the Truth in Lending Act (TILA), commonly referred to as Regulation Z (Reg Z).

2. Purpose of the Reports

The primary purpose of these reports is to:

  • Display the effective rate percentage based on fees charged on military loans.
  • Print this effective rate on the member’s statement.
  • Identify active military loans where the effective rate surpasses 36%, making them subject to a refund.

3. Report Overview

3.1. LN35119-1 and LN3511-2: Reg Z Effective Rate Update Reports

These reports provide a detailed breakdown of loan calculations and effective rates, primarily for monitoring purposes.

3.1.1. Key Data Points Presented

The reports include the following columns for each loan:

  • Sfx (Suffix): Loan suffix.
  • Current Bal: Current outstanding balance of the loan.
  • Ave Dly Bal (Average Daily Balance): The average daily balance over the cycle.
  • Days: Number of days in the current cycle.
  • Cur Rate (Current Rate): The nominal interest rate of the loan.
  • Dly Rate (Daily Rate): The daily interest rate (Current Rate / 365).
  • Daily Int (Daily Interest): The calculated daily interest.
  • Fee Amt (Fee Amount): The total amount of fees charged on the loan within the cycle.
  • Eff Rate (Effective Rate): The calculated effective annual percentage rate, including fees.

3.1.2. Effective Rate Calculation Formula

The effective rate is calculated using the following formula:

(100Current Rate​÷Days in Year×Average Daily Balance×Days in Cycle+Fee Amount)÷Days in Cycle÷Average Daily Balance×Days in Year×100

Example Calculation Breakdown:

Using provided data (e.g., Current Rate = 2.25%, Average Daily Balance = 3162.98, Days in Cycle = 31, Fee Amount = 8.74):

  1. Convert Current Rate to Decimal: 2.25/100=0.0225
  2. Daily Rate: 0.0225/365≈0.0000616
  3. Interest Component: 0.0000616×3162.98×31≈6.04432
  4. Total Cost (Interest + Fees): 6.04432+8.74=14.78432
  5. Cost per Day per Dollar: 14.78432/31/3162.98≈0.00015077
  6. Annualized Cost: 0.00015077×365≈0.0550
  7. Effective Rate Percentage: 0.0550×100=5.50%

3.1.3. Refund Determination

  • If the calculated effective rate does not exceed 36%, no refund is necessary.
  • If the calculated effective rate surpasses 36%, the active military loan is subject to a refund.

3.2. CCMARPRN Report

The CCMARPRN report focuses on credit card MAPR (Military Annual Percentage Rate) and refund amounts.

3.2.1. Key Data Points Presented

The report includes the following columns:

  • Member Name: Name of the credit union member.
  • CREDIT Current Balance: Current balance of the credit card.
  • CARD MAPR Average Balance: Average balance used for MAPR calculation.
  • REFUND Current Finance Charge: The finance charge incurred that may be subject to refund.
  • WORKSHERT Maximum Finance Charge: The maximum allowable finance charge to stay within the 36% APR limit.
  • MAXIMUM APR: 36% Refund Amount: The calculated amount to be refunded to the member to bring the effective rate below or equal to 36%.

3.2.2. Refund Example

As per the provided data, if a fee of $17.50 results in a 75.763% effective rate (which exceeds 36%), a refund is calculated. For instance, a refund of $10.92 would be issued to reduce the effective rate from 75.763% to approximately 35.975% (if the fee was $6.58 instead of $17.50).

4. Teller IDs Subject to 36% Effective Rate

The following Teller IDs are typically subject to the 36% effective rate calculation and may contribute to the effective rate that triggers a refund:

  • VI – Interest
  • VO – Over Limit Fees
  • VA – Annual Fees
  • VL – Late Fees
  • Cl – Insurance
  • Description – Cash Advance Fee

5. Modifying or Adding Teller IDs

If the credit union needs to modify existing Teller IDs or add additional Teller IDs that should be subject to the 36% effective rate calculation, access CALL CC1085R within the Flex system.

6. Report Posting Effectiveness

The reports are generated based on specific posting effective dates. Examples include:

  • Reg Z Effective Rate Update Report Posting Effective: 7/31/20
  • Reg Z Effective Rate Active Military Report Posting Effective: 2/28/18

7. Confidentiality Notice

This document is published by Computer Marketing Corporation/FLEX and is intended solely for its contracted clients. It may contain information that is privileged, confidential, or otherwise protected from disclosure. Dissemination, distribution, or copying of this document and any accompanying attached information by someone other than the intended recipient(s), or an employee or agent acting on behalf of the intended recipient, is strictly prohibited.