Why is an overstated APR, due to an overstated finance charge, considered accurate under Reg Z?

An overstated APR due to an overstated finance charge is considered accurate under Regulation Z because it generally results in the borrower receiving a better deal than what is actually reflected in the disclosure. This is rooted in the principle of consumer protection that underlies the Truth in Lending Act. If the APR is overstated, it means the costs associated with the loan appear higher than they actually are.

As a consequence, when borrowers see a higher APR, they might assume they are being charged more than they actually will pay over the life of the loan. This perception leads them to evaluate the loan more conservatively. Therefore, if they accept the terms based on the higher figures, they are, in essence, getting a deal that is better than the one disclosed. The misrepresentation does not disadvantage the borrower, as they would incur lower actual costs than anticipated by the disclosed APR.

Other considerations, such as the possibility of calculating a correct APR if the finance charge is overstated, or the borrower’s right to rescission, do not address the essence of how the overstated APR could be advantageous to the borrower. The lender's utilization of the best information available is also not relevant to why an overstated APR would be deemed accurate under Reg Z, as the