A closing disclosure on a regular transaction shows an annual percentage rate of 6.375%. The figure calculated from the final terms is 6.545%. Using the regular-transaction APR tolerance and assuming no separate finance-charge-based accuracy exception applies, is the disclosed APR accurate?
Correct Answer
C) Inaccurate: 0.17 exceeds the 1/8 of 1 percentage point tolerance
C. The 0.170-percentage-point error exceeds the regular-transaction tolerance. 6.545% − 6.375% = 0.170 percentage point. The ordinary regular-transaction tolerance is 0.125 percentage point in either direction; this error exceeds it by 0.045 point. Scope and exceptions: The question excludes separate finance-charge-based accuracy provisions. In an actual mortgage review, check those provisions before declaring an APR inaccurate. Regular versus irregular is a transaction classification, not simply fixed versus adjustable rate. Source: Section 1026.22(a)(2)–(5) and associated commentary — https://www.consumerfinance.gov/rules-policy/regulations/1026/22/
Why This Is the Correct Answer
C. The 0.170-percentage-point error exceeds the regular-transaction tolerance. 6.545% − 6.375% = 0.170 percentage point. The ordinary regular-transaction tolerance is 0.125 percentage point in either direction; this error exceeds it by 0.045 point. Scope and exceptions: The question excludes separate finance-charge-based accuracy provisions. In an actual mortgage review, check those provisions before declaring an APR inaccurate. Regular versus irregular is a transaction classification, not simply fixed versus adjustable rate.
Why the Other Options Are Wrong
Option A: Accurate: a variance under 0.25 points is within the tolerance
The 0.25-point irregular-transaction tolerance is not the assumed rule.
Option B: Accurate, since the rate itself was disclosed correctly on the note
An accurate note rate does not establish an accurate APR.
Option D: Inaccurate: any difference at all makes a disclosed APR wrong
The regulation allows a tolerance, so an exact match is not always necessary.
Exam Tip
Subtract APRs in percentage points, then apply the correct accuracy rule.
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