Submitted by A F Bob Blair Jr on March 2, 2009 - 2:44am.
The President's Advisory Council on Financial Literacy (PACFL), it is a name that should imbue confidence of high professionalism and truthfulness. Unfortunately, I have not been unsuccessful, on 5 "Comment" occasions, of receiving any approbation that the Truth in Lending Act (TILA) of 1968 uses an antiquated method of calculating the Annual Percentage Rate, which is currently mathematically-untrue. That method is called any of the following: simple-interest, actuarial, U S Rule, or NONIMAL APR (NAPR), the interest rate for a payment period multiplied by the number of payment periods in a year. When TILA was being considered in 1967 there were no ubiquitous machines that could calculate the mathematically-true, compounded ("^") EFFECTIVE APR (EAPR). In Consumer's Reports' "Viewpoint" in February the editor wrote on a high interest loan, the borrower taking-out a loan of $400 for 16 days with $120 of interest. The current NAPR is 684% (120/400)*(365/16). The mathematically-true APR is 39,650% (((1+(120/400))^(365/16))-1). TILA allows a tolerance in stating the NAPR of 1/8th percent (0.125%). The EAPR is 311,728 of those 1/8% from the NAPR ((39,650%-684%)/0/125%). The Truth in Savings uses the EAPR, so should TILA. It is a simple as changing the words in TILA for "multiplied by" to "compounded for". PACFL should recommend the change to the President and Treasury.
President's Advisory Council on Financial Literacy
The President's Advisory Council on Financial Literacy (PACFL), it is a name that should imbue confidence of high professionalism and truthfulness. Unfortunately, I have not been unsuccessful, on 5 "Comment" occasions, of receiving any approbation that the Truth in Lending Act (TILA) of 1968 uses an antiquated method of calculating the Annual Percentage Rate, which is currently mathematically-untrue. That method is called any of the following: simple-interest, actuarial, U S Rule, or NONIMAL APR (NAPR), the interest rate for a payment period multiplied by the number of payment periods in a year. When TILA was being considered in 1967 there were no ubiquitous machines that could calculate the mathematically-true, compounded ("^") EFFECTIVE APR (EAPR). In Consumer's Reports' "Viewpoint" in February the editor wrote on a high interest loan, the borrower taking-out a loan of $400 for 16 days with $120 of interest. The current NAPR is 684% (120/400)*(365/16). The mathematically-true APR is 39,650% (((1+(120/400))^(365/16))-1). TILA allows a tolerance in stating the NAPR of 1/8th percent (0.125%). The EAPR is 311,728 of those 1/8% from the NAPR ((39,650%-684%)/0/125%). The Truth in Savings uses the EAPR, so should TILA. It is a simple as changing the words in TILA for "multiplied by" to "compounded for". PACFL should recommend the change to the President and Treasury.