Final answer:
The regulation requires financial institutions to disclose both the interest rate and APY to customers to inform them of the true cost of borrowing or the earnings on savings products. Usury laws exist to cap excessive interest rates, though these caps often remain above typical market rates.
Step-by-step explanation:
The regulation mentioned by the student pertains to the requirement of financial institutions to disclose both the interest rate and the Annual Percentage Yield (APY) to customers when presenting information about loans and savings products. The interest rate is the cost of borrowing funds, typically expressed as a percentage of the principal. The APY, on the other hand, reflects the total amount of interest paid on an account, based on the interest rate and the frequency of compounding for a year.
In the financial industry, it is standard practice for banks and other lending institutions to not only charge a monthly interest rate on loans but also expect borrowers to repay a portion of the 'principle', which is the initial amount borrowed. Banks justify higher interest rates citing the need to cover losses from delinquent repayments and the risk associated with lending.