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Sunday, July 15, 2012


Afbob Blairjr

If I am reading correctly, both Verret and Bramson state that the CFPB can change “abusive” conditions in the Truth in Lending Act. Well, then my quest, to see the Truth In Lending Act (TILA) of 1968 use the mathematically-true method of calculating the Annual Percentage Rate is within the grasp of honest administrators. The current method of calculating the annual percentage rate (APR) is uncharged from the original act in 1968. It is based on a U S Supreme Court case in 1839, Story v. Livingston (on the Internet). Shall we also use quill, inkwell, parchment and blotter as was used in 1839? In 1967, Joseph Barr (then Undersecretary of the Treasury) told the subcommittee hearing the proposed Act that, of the 7 methods of expressing an APR, the actuarial (simple-internet) method was the true method. (An inaccurate statement, and therefore abusive) The inaccurate method is in TILA at Regulation Z, Part 226, Subpart G, Appendix J(b)(1) “The annual percentage rate shall be the nominal annual percentage rate determined by multiplying the unit-period rate by the number of unit-periods in a year.” (Emphasis, in bold, supplied.) The word, ”nominal,” is defined as “not real or actual” in Black’s Law Dictionary © 1968, also in Webster’s New College Dictionary © 1953 and © 1979, and also The American Heritage Dictionary © 1969. That should give the reader a strong suspicion that the nominal (simple-interest) method is not true.
That simple-interest method I will acronym the SIAPR. The mathematically-true APR is the Compound APR (which I will acronym CAPR). On a recent case in Wisconsin, Payday Loan Store of Wisconsin v. Jesica Mount. Payday sued Mount who did not pay a payday loan for $100 with an interest of $20 for 6 days. Mount’s won on lower court citing Wisconsin’s lending law on the prohibition of “unconscionable” interest rate. The SIAPR on the loan was 1,833.33%, calculated (using Excel mathematical symbols: add +, subtract-, multiply *, divide /, and compound*) as (22/100)*(365/6)*100. Apparently, Mount’s attorney was not aware of the mathematically true, Compound APR, CAPR, which is 17,928,912.34%, calculated as (((1+(22/100))^(365/6))-1)*100, TILA allows for an inaccuracy is expressing the APR of one eight of one percent (0.125%). Not only is the financially-true CAPR slightly over one of the tolerances from the SIAPR, it is 143,420,592 of those tolerance of 0.125% from the SIAPR, calculated as (17,928,912.336%-1,338.333%)/0.125%. Wisconsin law on lending did not define “unconscionable.”
The Appeal Court sent the case (certified) to the Wisconsin Supreme Court, since it might affect any region in the state. I happened to comment all the above on the website of the Wisconsin Law Journal (still there today). Payday withdrew their suit.
So, how does one go about asking the CFPB administration to adopt the mathematically-true CAPR? When I submit comments in accordance with the Federal Register: one had the Excel Spreadsheet scrambled past comprehension, another, I could never find if it was received in good order after 6 phone calls, all sent to an answer machine. If you ask to speak to a specific person, the operator says, “I do not have access to phone number of so-and-so, but you may write a comment on the website.” You cannot find out Mr Cordray’s future itinerary either. Does all that reek of malodorous to you?
Yet reading? This last precept in thy memory … the mega abuser is … OVERDRAFT FEES. If it looks like a loan, has conditions like a loan, and walks like a loan … it is a loan. Using the excellent research in the February 28, 2012 59-page Comment to the CFPB by Center for Responsible Lending, Consumer Federation of America and National Consumer Law Center on Overdraft, I give an example of median data (page 47-48). Those 3 major consumer advocacy organizations do not comment on the CAPR, which remains a mystery to me. Assuming that a bank charges $35 on an overdraft over $5.00 and after 5 day an additional $35, both to be paid on the 14th day, then on an overdraft of $5.01 the SIAPR would be a shocking 36,427%,calculated as ((35+35)/5.01)*(365/14)*100, but the CAPR would be a gorgonizing 437,790,268,686,907,900,000,000,000,000,000% calculated as (((((35+35)/5.01)+1))^(365/14))-1)*100. You can work that formula on an iPhone: 70÷5.01=+1=yX (365÷14)=-1=X100= 4.3779026869079e+32.
.Bottom line: I hope both Verret and Bramson agree that the current simple-interest method of calculating the Annual Percentage Rate can be astronomically untrue, and therefore “Abusive,” and should be changed to the mathematically-true compound method.

Rob Bramson

On a similar note, of course, one wonders why Prof. Verret does not acknowldege that the Comptroller (and heads of FDIC, etc.) have long had precisely the same authority to ban credit card features, fees, etc. adopted by national banks (or S&L's, credit unions, etc., respectively), simply by concluding that the feature in question might undermine "safety and soundness". (Theoretically, these other agencies also could ban things because they were inconsistent with fairness to consumers, but none of them have taken that portion of their jurisdiction seriously for many years.)

One also has to wonder why the affiliation with George Mason University seems to be all anyone has to know about a person to understand their political bent. It's a private college, so they can do what they want. But I would think they would be embarassed to just be the "Fox News" of the academic world. Harvard, Berkeley, Chicago, etc. all have a reasonable mix of people, even if the overall slants are arguably toward one end or the other.

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