Interested in APR and fees and how they effect agreement unenforceability

[Peterbard]

Fees Charges interest and APR

 

 

A quick intro to the subject just skip the bits you already know.

 

Interest

Basic or flat rate annual interest is calculated using three basic values

1) Total Credit (the amount you borrow)

2) Interest

3) Repayment period

The sum of the first two is the Total Amount Payable (TAP)

So say you borrow £200 pounds over 24 months and the interest is 30% p/a

The interest on the credit would be £60 per year for two years or 2*60=£120

The TAP would be interest + total credit £320

The repayments would be 320/24 = £13.33 per month

 

APR

The flat rate interest can be used by the lender when comparing various loan options in order to get the best deal but it does not give the full picture it ignores two important points.

 

1) The repayment intervals

Say you borrow £100 with twelve monthly repayments at a flat annual rate of 6.5%.

This means your TAP is £106.5.

Now say you borrow the same amount £100 over twelve months but you repay the loan in one repayment on the last month of the term (ie one payment of £106.5)

The flat rate on both loans are the same but which gives the better deal?

Obviously the second because you have had the use of the money longer before you have to pay it back,

The APR takes account of this in the first instance the APR would be 12.68% and in the second a much more attractive 6.5% .

This is worth remembering when we talk about fees and charges that are paid in addition to the first or as an initial payment ,as we have seen an irregular payment especially at the beginning of the term can have a great effect on the APR

 

2) Fees Charges and Compulsory Insurances

The additions of fees charges or other items that must be taken out in order to get the loan will of course effect the desirability of the loan purchase and must be reflected in the APR.

This is done by directing the creditor to add any such sums to the interest creating a figure known as the :

Total charge for Credit

 

 

TOTAL CHARGE for CREDIT consists of any monies that you contractually agreed to pay in order to procure the loan. It Includes;

 

• The interest charged on the loan
  
• Any setting up fees charged by the creditor
  
• Any insurance that was conditional on you getting the loan (if you didn’t buy they wouldn’t give you the loan)
  
• The final purchase element on a hire purchase agreement
  
• Any brokerage charges
  
• Any attached agreements necessary to the purchase of the loan
  

(An exhaustive list of charges that should be included in the TCC are contained in the TCC regulations 1980)

 

We have seen that that he interest rate is calculated using the total credit and the amount of interest .

 

The APR. is calculated by using the total credit and the (amount of interest + all the compulsory charges (or the TCC) ).

 

The Regulations and Total Charge for Credit

Section 9(4) of the Consumer Credit Act 1974 says

“For the purposes of this Act, an item entering into the total charge for credit shall not be treated as credit even though time is allowed for its payment.”

Section 20 enables the secretary of state to define “what items are to be treated as entering into the total charge for credit, and how their amount is to be ascertained;”.

This he does in the statutory instrument, Total Charge for Credit Regulations.

 

Correctly applying fees and charges to an agreement.

If a fee or charge falls into the category of a charge for credit as we have seen the regulations give instructions on how it should be added to the agreement this is not always as straight forward as it seems.

Say you buy a car for £2000 the interest is 40% which comes to £50 and the dealer wants to charge you a document fee of £20.

Total credit £2000

 

Total charge for credit made up of £50 interest + £20 fee

 

TAP £2070

The repayments on equal monthly payments would be 2070/12= £172.50

This is in accordance with the act as the fee is include within the TCC and as we saw earlier would give an accurate figure when the APR is calculated.

 

Now lets look at what sometimes happens.

 

A)

A fee is charged at collection of the vehicle as well as being in the total charge for credit.

This is easily overlooked as the salesman usually says that you are simply paying of the fee up front and it will be knocked off your total, this is of course bull. As we see here it increase your TAP and ends up in the dealers pocket he then sends the undeterred agreement to the credit company and bobs your uncle.

 

Total credit £2000 +£20

 

Total charge for credit made up of £50 interest + £20 fee

 

TAP £290

 

B)

The fee is added to the total credit

This breaches section 9(4) of the act because as you see it has caused the interest rate to increase and also the TAP which will also of course result in the repayments being increased.

This is not always easy to spot on the agreement, what usually happens is that the first payment is increased in order to pay the fee.

There is no way of getting around the illegality of this.

Total credit £2000 +£20

 

Total charge for credit made up of £50.5 interest

 

TAP £2070.5

 

C)

The fee is just for convenience being added to the initial payment, but is separate to the main agreement on which all the calculations for APR are correct.

 

This would mean that a compulsory fee was not being factored into the calculation for APR and it would be therefore inaccurate.

 

Note

It is not as easy as just saying that the creditor cannot add the fee to the first payment. He can but the fee must form part of the charge for credit and must have an effect on the APR.

The only way to check that he has complied is to do the maths and calculate the APR

1 With the fee included in the Total charge for credit.

2 With the fee included in the Total Credit

If the figure on the agreement agrees with 1 then the agreement is OK if it agrees with 2 then you have your claim for unenforceability.

(Remember that if the agreement has a larger initial payment your calculation will have to allow for an irregular first payment in order to give an accurate APR see ((1) The repayment intervals above.)

Edited March 7, 2009 by Dodgeball

[Guest Gordons Barking]

Nice could do with refs to associated regulation, a couple of times people have asked about the regs for determining if the APR and interest rates are within limits. Lots of CAGers will not know the notation used, putting that calculation into a grunt friendly form might be worthwhile. I can not be bothered as Martin 3030 is wearing me out editing my posts and accusing me of being a racist - FASCIST ;¬)))))

[Peterbard]

Hi

Thanks

 

The issue of whether fees have been correctly applied comes up a lot on here, and there seems to be some confusion regarding the regulations, this was supposed to be an introduction rather than a complete guide hopefully to start debate.

This is after all one of the main reasons for challenging the enforceability on Consumer credit agreements available to us.

But to answer the question

 

The creditor muat quote the APR to an accuracy of .1% below or 1% above the actual fugure on the agreement.

 

This is contained within the Total Charge for Credit Regulations 1980 along with the formula for calculating the APR.

 

Regards

Peter

Edited March 8, 2009 by Dodgeball
wrong way round doh

[daz10277]

Hi there

 

I've been searching all night for advice on whether the APR on my CCA is correct or not and it certainly doesn't seem very simple! This old thread is the nearest I could find so I'm hoping someone can help me.

 

The formula in the regs is so complicated, I couldn't do it manually so I've tried to use online calculators. I've calculated the correct APR to be not within +/- 1% of the APR stated but I'm not confident I'm right. I just cannot get the same monthly payment or interest charged based on the APR shown.

 

My CCA is here:- HBOSCCA3.jpg picture by daz10277 - Photobucket

 

Anyway, my actual questions are -

1. Does the APR have to be correctly calculated and within the 1% tolerance to be enforceable? Looking at the advice provided this appears true?

2. If the CCA is challenged in court, is the onus on me or the OC/DCA to prove the interest and APR is correctly calculated?

 

All other aspects of my CCA appear to have all the prescribed terms intact, I'm just really hoping I can argue the interest element hasn't been correctly calculated or APR is wrong which will render it unenforceable.

 

Apologies if this has already been covered elsewhere.

 

Any help would be really appreciated.

 

Thanks

Daz

[Peterbard]

hi

I have a spreadsheet i have developed that calculates APR to 4 decimal places i will do yours for you tommorow it is gettin late now

 

Peter

[daz10277]

hi

I have a spreadsheet i have developed that calculates APR to 4 decimal places i will do yours for you tommorow it is gettin late now

 

Peter

 

Hi Peter

 

This is appreciated. I've actually asked you about the APR in one of your other threads as I wasn't sure if you would have seen this post being as it is so old so apologies. I now understand the APR for me is not required in the prescribed terms as I took out a loan not credit card.

 

I assume this now means the correctness of the interest calculation is now irrelevant?

 

Cheers

Daz

[socleirigh]

Hi,

 

I have a loan which a claims management company says does not contain any breaches. But I was wondering if it was executed properly. It's in joint names with my wife and I met the bank manager at the branch and she printed off copy of agreement. I took it away and both my wife and I signed it and I brought it back next day with my license and wife's license. My wife never once went into the branch about it.

 

The cancellation rights in the agreement say that there is no right to cancel, but I thought that this could only be the case if the agreement was signed in the bank. Is this correct?

[Peterbard]

Hi

 

Yes although the APR is not a prescribed term it is srill a breach if it is outice the peramiters set in the regs.

 

It is after all the main indicator of the value of the loan or hhow good the bargain was. The court will rule against the creditor in most csses if he has missled you in your transaction by giving a false APR.

Also the APR total charge for credit are all mathematically linked so an incorrect apr may indicate that a fee is in the total credit when it should not be so the whoe agreement really needs to be properly evaluated.

 

Peter

[Peterbard]

Hi

Interesting question this .Must admit I had to look it up.

The act says must be signed by the debtor not executed in order for the creditor to be exempt from giving a cancellation period . So I would say yes the agreement should have been cancellable in your case if the agreement had to be signed by both lenders.

　

I would pursue this with them and say that you think your agreement is unenforceable because it breaches section127(4) Via (64)

　

They will probably say it was executed on trade premises but that isn’t the point is it.

Also mention you fulfil the requirements regarding antecedent negotiations. As you will have discussed the loan with them prior to taking it out.

Have a read at the regs I mentioned draft a letter and put it on here and we will give it the once over I think you have a chance here.

Peter

[Peterbard]

hi have a look here it may helphttp://www.consumeractiongroup.co.uk/forum/general/187938-interested-apr-fees-how-new-post.html

 

peter

[andrew1]

Just a quick note to publicly thank Peter for his recent added threads..most encouraging to refocus many of these tired issues. Well done.

[Peterbard]

Just a quick note to publicly thank Peter for his recent added threads..most encouraging to refocus many of these tired issues. Well done.

 

Hi

Thanks A

 

Greatly appretiated

 

Peter

[daz10277]

Hi

 

Yes although the APR is not a prescribed term it is srill a breach if it is outice the peramiters set in the regs.

 

It is after all the main indicator of the value of the loan or hhow good the bargain was. The court will rule against the creditor in most csses if he has missled you in your transaction by giving a false APR.

Also the APR total charge for credit are all mathematically linked so an incorrect apr may indicate that a fee is in the total credit when it should not be so the whoe agreement really needs to be properly evaluated.

 

Peter

 

Hi Peter

 

That's useful to know. I think it may be worth me checking the calculation then? Would you still be able to check it for me or if not can I have the excel formula (or file) you use please?

 

I'm so glad I joined this forum, you guys are great!

 

Many thanks

Daz

[daz10277]

hi have a look here it may helphttp://www.consumeractiongroup.co.uk/forum/general/187938-interested-apr-fees-how-new-post.html

 

peter

 

Was this message for me Peter? Bit confused as the link takes me to this same thread? :-?

[Peterbard]

Was this message for me Peter? Bit confused as the link takes me to this same thread? :-?

 

 

Hi Sorry

 

It was intended for another repl i was doing .

 

I will have a look at your agrement later today if that is ok.

 

I can send you a copy of the spready if you like but it is a bit of a nightmare to use i made it so that it corrects for interupted and irregular payments,using the go seek function.

 

Not so bad if you are used to it but as i say can be a bit awkward if your not.

Peter

[socleirigh]

Thanks Peter for the info. above. I will draft a letter at home tonight and post tomorrow.

 

Many thanks

[daz10277]

Hi Sorry

 

It was intended for another repl i was doing .

 

I will have a look at your agrement later today if that is ok.

 

I can send you a copy of the spready if you like but it is a bit of a nightmare to use i made it so that it corrects for interupted and irregular payments,using the go seek function.

 

Not so bad if you are used to it but as i say can be a bit awkward if your not.

Peter

 

Hi

 

I'll just wait for you to look at it when you have time. I'm not so good with formulas and commands in excel so I'll leave it to you if that's alright!

 

Any help you can give is really appreciated Peter, thank you.

 

Daz

[zondervan]

I stumbled across this thread and found it very interesting.I am trying to understand more about the 'Total Charge for Credit' and its overall status within enforceability. I would welcome views on my Lloyds TSB loan CCA below which does not contain any reference at all to any 'Total Charge for Credit' (it just identifies the amount of the loan, monthly repayment figure and percentage, and APR). In particular, with regard to whether or not is likely to be fully enforceable? http://s873.photobucket.com/albums/a...nt=CCAs001.jpghttp://s873.photobucket.com/albums/a...=CCAs003-1.jpghttp://s873.photobucket.com/albums/a...nt=CCAs002.jpgAny thoughts / advice would be greatly appreciated.Zondervan

[daz10277]

Hi Sorry

 

It was intended for another repl i was doing .

 

I will have a look at your agrement later today if that is ok.

 

I can send you a copy of the spready if you like but it is a bit of a nightmare to use i made it so that it corrects for interupted and irregular payments,using the go seek function.

 

Not so bad if you are used to it but as i say can be a bit awkward if your not.

Peter

 

Hi Peter

 

Sorry to pester but have you had a chance to check the calculation? If you are a bit busy I'd be grateful for the excel formula if that's ok?

 

Cheers mate

Daz

[gh2008]

Hi Peter

 

Sorry to pester but have you had a chance to check the calculation? If you are a bit busy I'd be grateful for the excel formula if that's ok?

 

Cheers mate

Daz

 

Punching your numbers into my spreadsheet gives the APR as 18.84%

The repayment wording is a bit obscure so this is assuming that the £85 was paid 1 month from inception date and there were then 60 payments of £178 starting 1 month after that.

If the £85 was actually made in month 2 and start of the £178 was month 3 then it works out at 18.11%

 

hth

gh

[daz10277]

Punching your numbers into my spreadsheet gives the APR as 18.84%

The repayment wording is a bit obscure so this is assuming that the £85 was paid 1 month from inception date and there were then 60 payments of £178 starting 1 month after that.

If the £85 was actually made in month 2 and start of the £178 was month 3 then it works out at 18.11%

 

hth

gh

 

Hi gh

 

Many thanks for this, it helps loads. I think the £178 was paid 2 months after the agreement date so that's month 2 which means APR is 18.84% from your calcs. That makes it 0.14 out from the figure they put on the agreement (which was 18.7%), so it's out, but only just.

 

Do you reckon the calculation would stand up in court as an argument the agreement is unenforceable as it breaches the Total Charge for Credit Regulations 1980? Being just 0.04 over the limit is so slight but at the end of the day it is still over

 

Cheers

Daz

[gh2008]

As a 'bit of a mathematician' I could produce an argument both ways.

As far as the APR goes the other sides argument would be stronger - something like - APR specifies to single decimal place stated APR 18.7% actual 18.8% therefore within the 0.1% tolerance allowed.

 

However IMHO there is no 'interest rate' stated which is a prescribed term

(to enable you to work out the monthly/annual interest charged.)

 

APR is a calculated figure, it is not a figure that can be used for calculations.

 

As an example borrow £120 interest free over 3 months, 1st payment 1 month after the advance but with a £5 arrangement fee payable on arrangement.

Sounds good, no interest, so on the CCA there would have to be a term stating that the interest rate is 0%

BUT the APR is 29.25%!!! errr ....

 

This is the reason the APR was introduced to more accurately represent the actual cost of the credit.

(If you pay the same £125 but over 3 months with an annual interest rate of 24.7% the APR is 27.7% and you are better off)

[daz10277]

However IMHO there is no 'interest rate' stated which is a prescribed term

(to enable you to work out the monthly/annual interest charged.)

 

Hi

 

Thanks for the explanation, didn't know it could be so complicated! I was always rubbish at maths at school.

 

According to the prescribed terms and confirmed by Peter, as I took out a loan, the rate of interest isn't required in my case. Peter also reckoned I could possibly challenge if the interest has been incorrectly calculated however your calculation indicates the interest charged is pretty much correct.

 

So, all in all, I think I will have to admit defeat and accept it is probably enforceable.

 

Appreciate your help

Daz

(BTW I did the scales for you, didn't know about that!)

[cab1ne]

hi gh2008

 

interesting thread,

could you work out the figures on this one please

 

Over…60 months

1x...£633.08 (includes £200.00 credit facility fee)

59x...£433.08

 

Cash price…£19748.10

Deposit…£500.00

Amount of credit…£19248.10

Interest…£6736.70

Credit facility fee…£200.00

Total charge for credit…£6936.80

 

APR 13.8%

Rate of interest…10.36% per annum

£19248.10 (Amount of credit)

£500.00 (Deposit)

£6736.70 (Interest)

£200.00 (Credit facility fee)

Total amount payable…£26684.80

 

cab

[gh2008]

hi gh2008

 

interesting thread,

could you work out the figures on this one please

 

Over…60 months

1x...£633.08 (includes £200.00 credit facility fee)

59x...£433.08

 

Cash price…£19748.10

Deposit…£500.00

Amount of credit…£19248.10

Interest…£6736.70

Credit facility fee…£200.00

Total charge for credit…£6936.80

 

APR 13.8%

Rate of interest…10.36% per annum

 

£19248.10 (Amount of credit)

£500.00 (Deposit)

£6736.70 (Interest)

£200.00 (Credit facility fee)

 

Total amount payable…£26684.80

 

cab

 

APR is spot on - Interest rate is waaaaaaaay off

need to double & triple check but currently I'm gettin 12.5% nominal annual and 13.2% effective annual