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Thursday, July 09, 2009



I have glanced through the 229 pages of the House Bill on the Consumer Financial Protection Agency (CFPA) which you linked in dated 7-9-09. Then, using the “find” box, I searched for the words: “compound” (as in compounded APR), 0 hits; “effective” (as in effective [steep in financial history as meaning “compounded”] APR) 0; “mathematically” (as in “mathematically-true”) 0; “annual percentage rate” 1; “nominal” (as in the Truth in Lending Act [TILA] describing the simple-interest [mathematically-untrue] APR) 0, deceptive 19 times. If you were financial illiterate and were told to believe that 684% is within 0.125% of 39,650%, would you call that deceptive? Yet an example of that astronomically-false aberration is illustrated in the column, “Small loan, big problem” (page 5) in the February issue of Consumer Reports. A school principal took out a loan for $400 which was to be repaid with interest in 16 days along with $120 in fees. According to the mathematically-untrue calculation of the annual percentage rate (the simple-interest, NOMINAL APR [NAPR]) in the Truth in Lending Act of 1968 the APR is 684.375% calculated (120/400)*(365/16). The mathematically-true, compounded (”^”), EFFECTIVE APR (EAPR) is 39,649.597% calculated (((1+(120/400))^(365/16))-1). TILA allows an accuracy of expressing the APR of 1/8th of 1 percent (0.125%). Therefore the number of 0.125%s that the EAPR is greater than the NAPR is not merely slightly over 1 of those 0.125%s, but is over 311,721 of those 0.125%s ((39,649.597%-684.375%)/0.125%) … ASTRONOMICALLY DECEPTIVE!!! Bush’s President’s Council on Financial Literacy was packed with organizations with financial interests and would never address the disparity. In 1968 protagonist of the legislation, Senator William Proxmire and Representative Leonora Sullivan were fortunate to get the legislation (pending since 1935) passed in any form with a financial institutions opposition. 4 joint committee meeting were held before that act was passed, but all were entirely in Executive Session. The current Congressional Archivist told me that no records were kept. So what happen in compromise behind closed door is lost. In the TRUTH IN SAVINGS ACT the mathematically-true, compounded APR is used and called the Annual Percentage Yield … probably to cloak and relationship to TILA. In summary I state again that the current method of calculating the ARP is ASTRONOMICALLY DECEPTIVE … and should be changed to the EAPR!

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