Under the federal Truth in Lending Act (TILA, 15 U.S.C. § 1601) and Consumer Financial Protection Bureau (CFPB) Regulation Z, lenders must disclose the full Annual Percentage Rate (APR) rather than merely the nominal interest rate.
1. The Mathematical Disconnect
📐 APR Formula with Origination Fees
APR = [((Total Finance Charges + Origination Fees) / Principal) / Total Days in Term] × 365 × 100
| Loan Structure | Nominal Stated Rate | Upfront Origination Fee | True TILA Effective APR |
|---|---|---|---|
| Fixed Installment Loan | 9.99% | 0% (Fee-Free) | 9.99% APR |
| Online Personal Loan | 12.50% | 5.0% Origination Fee ($500 on $10k) | 15.68% APR |
| Short-Term Small-Dollar Advance | 15.00% Flat Fee | $15 per $100 for 14 Days | 391.07% APR |