PURPOSE: Section 408.450, RSMo provides for variable rate consumer credit. Open-end variable rate accounts may vary rates monthly and must vary at least quarterly while closed-end variable rate accounts may vary rates quarterly and must vary at least annually. The maximum rate permitted is the lesser of twenty-four percent or two times the rate established at the previous auction of twentysix week treasury bills. All of this leaves the question of what auction date is to apply to a given credit transaction since the auctions are weekly. Further, there remains a question concerning when fluctuations will take place. This rule establishes the guidelines the Division of Finance will follow in enforcing the variable rate provisions of section 408.450, RSMo.

1. (1) The Division of Finance will consider a variable rate credit transaction in compliance if it bears a rate up to twenty-four percent (24%) which does not exceed two (2) times the rate established by the treasury bill auction immediately preceding the beginning of the calendar quarter (January 1 through March 31, April 1 through June 30, July 1 through September 30, October 1 through December 31) or, with open-end credit, the calendar month, (January 1 through January 31, February 1 through February 28 (29) and the like); unless the auction occurs on the last day of the period in which case the preceding auction sets the rate, or the rate is published in the Wall Street Journal. All these accounts must be adjusted on the first day of the new calendar period regardless of when the credit was extended.

   1. (A) For example, assume the last auction during the first quarter of 19XX established the treasury bill rate to be nine percent (9%). Therefore, the maximum rate for a closedend variable rate loan during the second quarter of 19XX would be two (2) times nine percent (9%,) or eighteen percent (18%) whether the credit was established on the first or last day of that second quarter. Likewise, assuming a quarterly fluctuation was agreed to, all variable rate closed-end credit extended during the second quarter would adjust rates on the first day of the third quarter of 19XX.
   2. (B) The same approach would be followed for variable rate open-end contracts except that the rate may change as often as monthly and so the key auction might occur three (3) times as often.
2. (2) As an alternative, variable rate accounts may be tied to the rate established by the auction held immediately prior to the extension of credit. If this approach is followed, the rate would fluctuate based on a month, quarter or whatever, calculated as actual days, that is thirty (30) days for a month, ninety-one (91) days for a quarter, one hundred eighty-two
3. (182) days for a half year and three hundred sixty-five (365) days for a year. This could result in fifty-two (52) different variable rates in effect at once and there could be adjustments every day. For example, the treasury bill rate on Friday, January 18, 19XX set the rate at nine and two-tenths percent (9.2%). The rate for all variable rate credit extended during the week of January 21, 19XX would be two (2) times that or eighteen and fourtenths percent (18.4%). If this contract, entered on January 23, calls for a quarterly fluctuation, the adjustment would be in ninety-one (91) days, on April 24.
4. (3) While either of these methods is available and a lender may use both, a given contract may not be subject to both. The approach to establishing and fluctuating the rate must be set at the beginning of the contract and maintained throughout.
5. (4) Fluctuations in rate are effective on the first day of each designated period.

AUTHORITY: section 408.450, RSMo 1986.* This rule originally filed as 4 CSR 140- 6.025. Emergency rule filed July 12, 1984, effective Aug. 13, 1984, expired Oct. 13, l984.Original rule filed July 12, 1984, effective Nov. 15, 1984. Moved to 20 CSR 1140- 6.025, effective Aug. 28, 2006.

*Original authority: 408.450, RSMo 1984.