Confused by RBS Compound Interest Calculation

[sirlunk]

Hi,

 

I’d be grateful for your advice as I am pulling my hair out trying to make sense of how RBS calculates compound interest on credit card PPI claims.

 

RBS has made three offers to date, all of which are far below what I’d expected. I have validated RBS’s figures for the actual monthly PPI charges and interest rates; it’s just their compond interest calculation which confounds me.

 

I have attached two documents for reference. The first (PDF) is their offer and calculations. The second (XLS) is my spreadsheet containing:-

1. The actual PPI charges and interest rates as per the PDF
   
2. The RBS calculation as per the PDF (column E: RBS Calc). Green cells indicate that I understand how RBS arrived at that figure. Red cells indicate that I don’t understand how RBS arrived at that figure. Column F shows the figure I’d have expected for cells in Red, assuming the balance brought forward was correct.
   
3. My calculation (column H)
   

 

As you can see, there’s a huge difference between their calculations and mine. Incidentally, if I use CISheet v1.01 and I average out the monthly interest rates and convert to APR of 0.17 (not sure if that’s correct) then I get a figure of £4638.69 – still well above the RBS offer amount.

 

What’s really confusing is that the RBS formula is applied inconsistently. All of the RBS figures shown in green appear to be calculated as follows:

 

(BalanceCarriedForward + NewPPICharges) x (1 + Interest Rate) = NewBalance

 

That makes perfect sense to me and I used the same formula for my calculations. However you will see that RBS doesn’t always use that formula as highlighted by all the red cells.

 

One example where RBS abandons the standard formula is for months where the credit card balance was zero and no PPI charges were applied. For those months (e.g. months 47 and 48), RBS applies no compound interest to the balance brought forward. When I questioned this, they replied as follows:

 

“The interest calculation for PPI is quite complex in nature. It takes into consideration of previous balance, current PPI premium paid, Interest rate charges and current balance of the card. If the balance on the card is nil/in credit, interest will not be charged for that particular month.”

 

I don’t understand why this is. I also don’t understand why the RBS calculations vary for months where the credit card balance wasn’t zero (i.e. a PPI charge was applied) as seen in months 94, 95 and 96.

 

Please bear in mind that I have no what the “Gross interest at FOS rate” is on the offer sheet and I haven’t added a similar calculation to my calculation.

 

After three rounds with RBS they’ve told me that the offer of £3925 is their final offer. I don’t know what to do. Am I just being a numpty or has RBS got it wrong? I would be very grateful for your guidance.

 

Many thanks,

Lunk

 

RBS PPI Offer and Calculations - 2012_04_09_11_15_35_OCR.pdf

20120409 - PPI Calculations for Forum.xls

[ims21]

Hi

 

You'll need to adjust your calculations for periods where the card balance was zero. No interest would have been charged to the account for that period so no interest for that period to come back.

 

Interest at fos rate is the 8% interest awarded where the removal of the ppi causes a credit balance and you get 8% simple interest on that credit balance

 

ims

[sirlunk]

Many thanks ims. I appreciate the lightning fast response!!

 

I have made the adjustment as you suggested, and this has brought my figure down from £5146 to £4838 - still well above the RBS offer of £3925. The updated spreadsheet is attached with my revised figures in column J.

 

20120409 - PPI Calculations for Forum - Revision 1.xls

 

Before seeking further guidance on the calculations in order to address the gap, perhaps I should first ask one question... RBS does this all day long. Assuming they have the correct monthly figures for PPI charges and interest rates (which they now do), should I trust their calculation and simply accept their offer?

 

Many thanks,

Lunk

[ims21]

Hi

 

You could use this spreadsheet if you have all of the statements.

 

It is based on the example of redress for mis-sold PPI on a credit card and enables you to reconstruct the account excluding the ppi. It will also calculate the interest based on the FSA/FOS system.

 

Might be worth a go to see what it comes up with, providing you have your statements. You can't use this one if you haven't got the account statements

 

ims

 

FosRunningPPI v101.xls