For credit card advertising, I was running myself ragged in Reg. Z the past few days and kept going back and forth about the requirement to show a range. I checked some major credit cards online and the vast majority display a range, but I could not find this specifically stated in Reg. Z. The following could imply that a blended rate is necessary, though I could see it also being a reference to two different rates being used within the same year:

1. Corresponding annual percentage rate computation. For purposes of §§ 1026.60, 1026.40, 1026.6, 1026.7(a)(4) or (b)(4), 1026.9, 1026.15, 1026.16, 1026.26, 1026.55, and 1026.56, the annual percentage rate is determined by multiplying the periodic rate by the number of periods in the year. This computation reflects the fact that, in such disclosures, the rate (known as the corresponding annual percentage rate) is prospective and does not involve any particular finance charge or periodic balance.

I'm sorry. What are you referring to as a blended rate and why?

Blended rate meaning a single APR that captures the various APRs that exist.

The range of rates you are referring to on the application/solicitation disclosures is when the creditor offers multiple rates on the same product (i.e. risk based pricing). There's no blended rate for that. When the consumer actually opens the account, the account opening disclosure shows their actual rate. If there's a promotional rate for a particular period, the chart shows the promotional rate, how long it's in effect, and what the regular rate is (the current regular rate if it's a variable rate product).

Yes, I just don't see where it is specifically noted in the advertising regulations. Is it because, in essence, if you disclose the APR for the product and different rates exist, then each separate rate IS the APR for that ad?

My issue with that is Mortgage Loans have different rates as well based on borrower credit characteristics, but nobody goes around doing mortgage ads with a range of rates.

If it's a "solicitation" to which 1026.60 applies, then that's your answer. If it's not, and it's just regular advertising, then nothing says you have to disclose a range. Some lenders advertise the range as opposed to advertising rates "as low as" the lowest rate for UDAAP/UDAP reasons.

Advertising a blended APR would not be accurate, because there is no such thing in open-end lending. But the same would be true for mortgages. If you offered a risk priced mortgage, you wouldn't advertise a "blended" APR that covered the different rates. The "blended" APR only applies when there are multiple rates that will apply to the same person's loan.

@Rainman -- thank you for your input. This was helpful and solidifies my understanding.

For closing costs, such as prepaid interest, does it just come down to picking a representative extension of credit and using that?

OK friends, I need a jolt to jump start my weary brain...

1026.24(f)(2) reads:

(2) Disclosure of rates. (i) In general. If an advertisement for credit secured by a dwelling states a simple annual rate of interest and more than one simple annual rate of interest will apply over the term of the advertised loan, the advertisement shall disclose in a clear and conspicuous manner:

(A) Each simple annual rate of interest that will apply. In variable-rate transactions, a rate determined by adding an index and margin shall be disclosed based on a reasonably current index and margin;

(B) The period of time during which each simple annual rate of interest will apply; and

(C) The annual percentage rate for the loan. If such rate is variable, the annual percentage rate shall comply with the accuracy standards in §§1026.17(c) and 1026.22.

Requirement (C) is tripping me up today. Do we need to compute the APR for the corresponding interest rate adjustment to come? That is, if we have a 7/5 ARM, I know the APR for the entire loan (Laser Pro computes it), but I do not know the APR for the adjustment that occurs at 7 years. We estimate the payment based on the current index and margin, but Laser Pro does not break down the APR for that part of the amortization schedule.

I think I'm overthinking it -- we are trying to insert a corresponding APR into the table for the line that provides the adjusted payment amount starting in year 8. I don't think I need to now, and it is fine to just disclose the single APR spit out by LP for the entire loan (and of course disclose it can go up).

Right?

A closed end loan only has one APR, so I am a little confused. If your ARM loan is based on the index plus margin at closing, there is no adjustment to the payment stream to calculate the APR for the entire loan term.

See, that's why I needed a reset. Ha! Thanks Randy, I got lost in the depths of my first day back after an extended weekend. I left my brain at the lake.