The following words and terms, when used in this subchapter, have the following meanings, unless the context clearly indicates otherwise:

1. (1) Accrual method--A method to compute a finance charge and apply the finance charge to the unpaid principal balance. Both the true daily earnings method and the scheduled installment earnings method are accrual methods.
2. (2) Add-on method--A method for calculating a precomputed time price differential charge in which the retail buyer agrees to pay the total of payments. The total of payments includes both the principal balance of the contract and the time price differential charge. The add-on time price differential charge is calculated at the inception of the contract on the principal balance for the full term, as if the principal balance of the contract did not decline over the term of the contract.
3. (3) Contract rate--The annual time price differential rate that may be stated in a retail installment contract, and that accrues or is assessed against the principal balance that is subject to a finance charge for the term of the contract. The contract rate cannot exceed the daily rate converted to an annualized rate.
4. (4) Creditor--The seller or any subsequent holder or assignee of the retail installment contract.
5. (5) Daily rate--The rate authorized under Texas Finance Code, §348.105, or the simple rate equivalent of the rate applicable to the contract under Texas Finance Code, §348.104, computed on a daily basis using a 365-day calendar year.

6. (6) Irregular payment contract--A contract:

   1. (A) that is payable in installments that are not consecutive, monthly, and substantially equal in amount; or
   2. (B) the first scheduled installment of which is due later than one month and 15 days after the date of the contract.
7. (7) Regular payment contract--Any contract that is not an irregular payment contract.
8. (8) Scheduled installment earnings method--The scheduled installment earnings method is a method to compute a finance charge by applying a daily rate to the unpaid principal balance as if each payment will be made on its scheduled installment date. A payment received before or after the due date does not affect the amount of the scheduled reduction in the unpaid principal balance. Under this method, a finance charge refund is calculated by deducting the earned finance charges from the total finance charges. If prepayment in full or demand for payment in full occurs between payment due dates, a daily rate equal to 1/365th of the annual rate is multiplied by the unpaid principal balance. The result is then multiplied by the actual number of days from the date of the previous scheduled installment through the date of prepayment or demand for payment in full to determine earned finance charges for the abbreviated period. In addition to the earned finance charges calculated in this paragraph, the creditor may also earn a $150 acquisition fee for a heavy commercial vehicle, or a $25 fee for other vehicles, so long as the total of the earned finance charges and the acquisition fee do not exceed the finance charge disclosed in the contract. The creditor is not required to refund unearned finance charges if the refund is less than $1.00. The scheduled installment earnings method may be used with either an irregular payment contract or a regular payment contract. The computation of finance charges must comply with the U.S. rule as defined in Appendix J of 12 C.F.R. Part 226 (Regulation Z).
9. (9) Seller--The seller of the motor vehicle.

10. (10) Sum of the periodic balances method (Rule of 78s).

    1. (A) Under this method, the finance charge refund is calculated as follows:

       1. (i) Subtract an acquisition fee not greater than $150 for a heavy commercial vehicle, or $25 for other vehicles, from the total finance charge.
       2. (ii) Multiply the amount computed in clause (i) of this subparagraph by the refund percentage computed below. The result is the finance charge refund.

       3. (iii) Compute the refund percentage by:

          1. (I) Computing the sum of the unpaid monthly balances under the contract's schedule of payments beginning:

             (-a-) On the first day, after the date of the prepayment or demand for payment in full; that is, the date of a month that corresponds to the date of the month that the first installment is due under the contract; or

             (-b-) If the prepayment or demand for payment in full is made before the first installment date under the contract, one month after the date of the second scheduled payment of the contract occurring after the prepayment or demand;

          2. (II) Dividing the result in subclause (I) of this clause by the sum of all of the monthly balances under the contract's schedule of payments.

    2. (B) As an alternative for heavy commercial vehicles, as defined in the Texas Finance Code, the sum of the periodic balances method may be computed as follows

       1. (i) Multiply the total finance charge by a refund percentage determined as follows:

          1. (I) Compute the sum of the unpaid monthly balances under the contract's schedule of payments beginning:

             (-a-) On the first day, after the date of the prepayment or demand for payment in full; that is, the date of a month that corresponds to the date of the month that the first installment is due under the contract; or

             (-b-) If the prepayment or demand for payment in full is made before the first installment date under the contract, one month after the date of the second scheduled payment of the contract occurring after the prepayment or demand;

          2. (II) Divide the result in subclause (I) of this clause by the sum of all of the monthly balances under the contract's schedule of payments.
       2. (ii) From the result derived in clause (i) of this subparagraph, deduct an acquisition fee not to exceed $150.
    3. (C) The creditor is not required to give a finance charge refund if it would be less than $1.00.
    4. (D) The sum of the periodic balances method may not be used with an irregular payment contract.
11. (11) True daily earnings method--The true daily earnings method is a method to compute the finance charge by applying a daily rate to the unpaid principal balance. The daily rate is 1/365th of the equivalent contract rate. The earned finance charge is computed by multiplying the daily rate of the finance charge by the number of days the actual unpaid principal balance is outstanding. Payments are credited as of the time received; therefore, payments received prior to the scheduled installment date result in a greater reduction of the unpaid principal balance than the scheduled reduction, and payments received after the scheduled installment date result in less than the scheduled reduction of the unpaid principal balance. The computation of finance charges must comply with the U.S. rule as defined in Appendix J of 12 C.F.R. Part 226 (Regulation Z).
12. (12) Vehicle--A motor vehicle as defined by Texas Finance Code, §348.001(4).

Source Note:The provisions of this §84.204 adopted to be effective August 31, 2006, 31 TexReg 6658.