APR wrong!

[excel1]

Am i right in believing that if the APR is wrong on my~CCA then its unenforceable?

thanks

[pt2537]

its not as straight forward as that i am afraid.

[excel1]

could you please enlighten me, the APR states 29.8% but have worked it out that its 40.47%!(theiving BAS*****S)

[nicklea]

That seems a really big difference, would you mind giving some details of the debt and how you calculated that figure? It may be that you are including some things that shouldn't be

[excel1]

£3000 over 4 years repayments £115.95 x 48 = £5565.60

they say 29.8% APR

This works out at about £101 per month and £4885 but if you use 40.47% it comes to £5565.60

This is a abuy now pay later agreement but nowhere is there any other maths or charges

[nicklea]

Hi excel,

 

On the face of it, it does appear that this is wrong. However, what you need to think about is if there was any payment holiday at the start of the loan.

 

You mentioned that is was "a buy now pay later agreement". It may be in the t&cs that, although you didn't need to make any payments, interest would still be accruing on the loan during the payment holiday.

 

So if, for example, you did not have to make any repayments for the first 6 months then the interest would still be accruing during this period and the figures you've given would be correct and the apr is 29.8% as you are actually borrowing the money over over 54 months.

 

Hope this is helpful

[excel1]

thanks now i understand it:roll:

[pelham9]

The CCA regulations 1983 say that two interest rates should appear on a CCA agreement.

 

1. the interest rate to be applied ( It could be a monthly or annual rate)

 

2. The APR if the interest rate 1 would result in an actual annual rate that is 0.1% below or 1% above the figures of the APR. The APR is the rate that you would have been quoted for the loan - it might have been just before you signed.

 

In most agreements the APR therefore does not have to be shown but the rate to be applied must. If it is shown it is usually a waste of space but it may well mean that you are being charged an actual rate that is well above the APR you have been quoted

 

If the APR is the ONLY rate shown the agreement is unenforceable simply because the APR is never 'the interest rate to be applied' because

 

a) If it contains compulsory fees it cannot express the interest to be applied.

b) It is an approximation to one decimal place and an annual rate must be to 2 or three decimal places to be accurate.

 

Unfortunately since it was introduced in 1977 as a total cost of borrowing rate to enable borrowers to compare loans the APR has come to mean in most peoples' minds the actual annual rate that will be charged on a loan. This is wrong.

 

When the APR is worked out all compulsory costs (eg an arrangement fee ) and interest payments are combined to arrive at an accurate total cost of borrowing rate. This rate is then rounded to one decimal place to arrive at the APR. Even if there are no costs the rounding is still allowed so the APR is always an approximation.

 

Make comparisons between loans using APRs but never expect that the APR will be the actual rate that you are charged. You should find this elsewhere in the agreement. It is often not shown and then the agreement is unenforceable.

[excel1]

Thanks,

all that is shown is the APR 29.8% nothing else, so thats unenforceable then? sorry to sound stupid but like to be sure!

[nicklea]

If the APR is the ONLY rate shown the agreement is unenforceable simply because the APR is never 'the interest rate to be applied' because

 

 

I believe that you are wrong in this. The interest rate is a prescibed term for credit card agreements only.

 

Even under the 2004 regs, this hasn't become a prescribed term and, if the interest rate is missing or incorrect, then the agreement is enforceable on a court order. In this case, I believe the interest rate is correct anyway.

 

Regards

 

nicklea

[tbern123]

£3000 over 4 years repayments £115.95 x 48 = £5565.60

they say 29.8% APR

This works out at about £101 per month and £4885 but if you use 40.47% it comes to £5565.60

This is a abuy now pay later agreement but nowhere is there any other maths or charges

 

 

Little confused with the calculations on this one..

 

APR is not an easy calculation. Take a look at page 9

http://www.oft.gov.uk/shared_oft/business_leaflets/consumer_credit/oft144.pdf

[ReasonableRon]

On regulated loan and HP agreements there is a requirement under the 2004 regs to show both the annualised rate of interest as well as the APR. This did not actually come into force until May 2005. If your agreement only shows an APR but is dated prior to May 2005 then this is not in breach of the CCA.

 

Hope that helps.

[pelham9]

Nicklea

 

The CCA 1974 was very well drafted and you are right that the interest to be applied was only necessary to be shown for running account credit. The APR had not been defined in 1974.

 

 

The 1983 regulations are not as well drafted. However look at Schedule 1

paragraph 9. Under the heading total charge for credit .rate of interest etc it says agreements for fixed sum credit ( except abcd) item 2 the rate of interest on the credit is required.

 

Exceptions abcd and running account credit are dealt with in pararaph 10 where again in item 2 the interest rate is required.

 

Note that the interest charged must be quoted on a per annum basis - it would appear that a monthly rate is not saisfactory and I have and we all have been wrong about this.

 

I do not think the 2004 regulations amended this in any way.

 

So

 

a. The interest rate charged has to be shown and on a per annum

basis

 

b. The APR also has to be disclosed but there is an important exception

 

For the purpose of these regulations it shall be sufficient compliance with the requirement to show the APR if there is included in the document

1) a rate which exceeds the APR by not more than:or

2) a rate which falls short of the ARR by not more than .1

 

 

This makes it quite clear that it is envisioned that the rate charged can and will vary significantly from APR. The most obvious instance is where charges have to be incuded in the APR .

 

It also makes it quite clear that the rate charged is not the APR and that an APR on its own cannot substitute for the rate charged.

 

This is totally in line with the initial purpose of the APR - a measure in percentage terms of the total cost of credit so that borrowers can compare loan offers. It is an advertising (in its broadest sense) term and is pre-agreement (maybe only seonds before signatures) and it is not changed by other interest rates shown in an agreement.

[pelham9]

tbern123.

 

The statutory formula always comes up when discussing the calculation of APR. The reason it is complicated is thst is a legal formula (not understood by lawyers!!) which takes in not only the varying repayment schedules of loans but the compulsory fees that must be taken into account.

 

Fortunately most loans are now repayed sensibly and are without compulsory fees and in these cases the calculation of APR can be done on the Windows scientific calculator and it is no more thn O-level maths. If you want to see how it is done I have posted methods in many places alswhere on CAG.

[pelham9]

tbern123.

 

To calculate the APR from the loan amount the amount and frequency of repayments is not difficult but it does require a iterative process which is best done using a simple computer program. An iterative process is a process which gets closer and closer to the correct answer by controlled trail and error. To get an APR you may need thousands of calculations and longhand this is very nearly impossible. A computer can do this in fractions of a second. Much of the complication in the OFT article you quote is because it was written before powerful computers were so readily availabe and there are longhand methods that can be used to shorten the iterative process.

 

If your loan repayments vary along the line or there is a payment holiday to start off you can only do the sums using an iterative process.

 

If however the loan is paid off by say 48 payments by a fixed amount it is often possible to calculate the monthly rate applied from a consideration of the outstanding amount and the interest applied for that month. The APR is easily calculated from the monthly rate.

 

If you are interested PM me.

[ReasonableRon]

 

I do not think the 2004 regulations amended this in any way.

 

 

SI No 1482 (2004) - The Consumer Credit (Agreements)(Amendments) Regulations 2004, which amended the Consumer Credit (Agreements) Regulations 1983.

 

This introduced for the first time the requirement to specify, on fixed sum credit agreements, the rate of interest applied on a per-annum basis.

 

The amendments came into force on 31/5/2005.

[nicklea]

Nicklea

 

However look at Schedule 1 paragraph 9.

 

Unfortunately, schedule 1 does not contain the prescribed terms - that's schedule 6. So it is still enforceable on a court order regardless. This means that the debtor must make the argument as to why he has been prejudiced and why the court should not make an enforcement order.

 

One possible way of doing this may be, if the interest rate shown is inaccurate, to argue that you agreed a loan at x% which would mean that the monthly amount payable was incorrect and so the prescribed terms are correct and it's not enforceable

[tbern123]

tbern123.

 

To calculate the APR from the loan amount the amount and frequency of repayments is not difficult but it does require a iterative process which is best done using a simple computer program. An iterative process is a process which gets closer and closer to the correct answer by controlled trail and error. To get an APR you may need thousands of calculations and longhand this is very nearly impossible. A computer can do this in fractions of a second. Much of the complication in the OFT article you quote is because it was written before powerful computers were so readily availabe and there are longhand methods that can be used to shorten the iterative process.

 

If your loan repayments vary along the line or there is a payment holiday to start off you can only do the sums using an iterative process.

 

If however the loan is paid off by say 48 payments by a fixed amount it is often possible to calculate the monthly rate applied from a consideration of the outstanding amount and the interest applied for that month. The APR is easily calculated from the monthly rate.

 

If you are interested PM me.

 

Thanks for the kind offer, sadly I am more then familiar with the calculation of APR and flat rates.

[pelham9]

Nicklea.

 

I am no lawyer though I do not think that matters a great deal as I doubt lawyers understand things much better than we laymen. Certainly thay have taken a very long time to understand that some CCA agreements are unenforceable in court.

 

As far as I can see there is no schedule 6 in the 1983 regualtions. Schedule 6 (as I understand it) is a schedule introduced in the 2004 regs to bring all the financial terms that must be in agreement together and defined them as prescribed terms for the purposes of the act. In other words though their were 'terms' in Schdule 1 of the 1983 regs which had to shown (if they were not shown the agreement was unenforsceable) they were just not called prescibed terms until the 2004 regs.

 

Please correct me if this is wrong!

[nicklea]

Hi Pelham,

 

Schedule 6 was not introduced by the 2004 regs. Here are the relevant sections from the 2004 regs modifying some of the schedules and you'll see that schedule 6 wasn't touched:-

 

13. For Schedule 4 (forms of statement of protection and remedies available under the Consumer Credit Act 1974 to hirers under regulated consumer hire agreements) substitute –

 

14. After Part II of Schedule 5 (forms of signature box) insert –

 

15. In Schedule 7 (provisions relating to the disclosure of the APR) for paragraph 1 substitute –

 

16. - (1) Schedule 8, part 1 (information to be contained in documents embodying regulated modifying agreements varying or supplementing earlier credit agreements) is amended as follows.

[pelham9]

Nicklea.

 

You are totally correct. Sorry for my error.

[nicklea]

No problem, that's why we're here - to learn from each other.

 

I'm still making mistakes and learning from other people

[pelham9]

I have read through my posts above and it occurred to me that my admission of error in #21 applied tp all my posts. The error was in the source of prescibed terms. Lest there be confusion in peoples minds I wonder if you would comment on thr following.

 

For running account credit.

 

1) The interest to be charged is a prescibed term.

 

2) The interest rate to be charged is not the APR.

 

3) The APR is not a prescibed term.

 

4) If the only interest rate appearing in an agreement is designated APR then the prescribed interest rate to be charged is not present and the agreement is unenforceable automatically.

 

5) The APR should also appear but see 6 below.

 

6) The APR does not need to be shown unless it is .1% below or 1% above another interest rate in the agreement ( which can only be the interest rate to be charged)

 

7) It is very unusual that the interest rate to be charged is equal to the APR - the APR [problem]..

 

8) A recent agreement I have seen showed the APR as 16.9% and the annual interest rate to be charged as 16.9%. On checking the monthly interest rate actually applied to the account it is found to be 1.313%. This is an APR of 16.9% but an annual rate of 16.945%. Is the agreement enforceable? I think not. 16.945% does not equal 16.9%.

[pelham9]

I have read through my posts above and it occurred to me that my admission of error in #21 applied tp all my posts. The error was in the source of prescibed terms. Lest there be confusion in peoples minds I wonder if you would comment on thr following.

 

For running account credit.

 

1) The interest to be charged is a prescibed term.

 

2) The interest rate to be charged is not the APR.

 

3) The APR is not a prescibed term.

 

4) If the only interest rate appearing in an agreement is designated APR then the prescribed interest rate to be charged is not present and the aagreement is unenforcible automatically.

 

5) The APR should also appear but see 6 below.

 

6) The APR does not need to be shown unless it is .1% below or 1% above another interest rate in the agreement ( which can only be the interest rate to be charged)

 

7) It is very unusual that the interest rate to be charged is equal to the APR - the APR [problem]..

 

8)A recent agreement I have seen showed the APR as 16.9% and the annual interest rate to be charged as 16.9%. On checking the monthly interest rate actually applied to the account it is found to be 1.313%. This is an APR of 16.9% but an annual rate of 16.945%. Is the agreement enforcible? I think not. 16.945% does not equal 16.9%.

[pelham9]

Duplicated post