Another "Screwing" Technique

[Scrooge]

Just to beware of...

When I used to work for a well known Bank, another way of screwing that little bit extra out of you was if you had a loan account,(perhaps a loan to consolidate borrowing or for a holiday). We used to be told that if the account holder wanted to close the loan early then the calculation was pretty straight forward....Capital plus interst from last Interest Debit date calculated on a daily basis. Many a time I saw the bank adding stupid amounts onto the interest accrued but unapplied. I said things on many an occassion and was basically told to "shut my face" and this was for "hassle" value. I know that the bulk of this forum is charges related, but for those users who come across lump sums and repay loans early.....beware and do a fag packet calculation yourself. Obviously different Banks have different ways of doing things but in essence the calc is the same.....it could save you ££££

 

This also applied to other non-standard requests where we were told to charge what we thought.

[dave]

It's otherwise known as the "rule of 78" which has since become illegal and will no longer be allowed on existing loans from 2007.

[cajdad]

Scrooge - is it Rule of 78 that you're talking about?

 

Rule of 78 is a common (but not widely publicised) method of calculating the final interest when a loan is repaid early - so that you end up paying more interest than you expect. It is certainly immoral, but I didn't know it was illegal. My understanding was that there wasn't anything you could do about it because it was mentioned (or hidden!) somewhere in the small print.

 

But reading your post I get the impression that bank staff were adding on amounts which they weren't entitled to do under any rule. Is that right? If so, surely that would be not only illegal, but fraudulent!

 

Incidentally, last year I wanted a loan which I was fairly sure I would be repaying early, so I looked for lenders who didn't operate Rule of 78, or any other early redemption penalty. Intelligent Finance fitted the bill, and their APR was one of the lowest too. To be safe, I sent them a letter with the the agreement saying I was accepting the loan on the understanding there wouldn't be a penalty if I repaid early, and that they wouldn't use Rule of 78. I have since repaid early, with no problem.

[Scrooge]

Quite frankly over my period of years with the bank, I'll be honest in saying that I have never heard of this "Rule 78". What I am saying is that I came across many people who for one reason or another were increasing their own profitability viz a vis Bonus etc. It was common place to be told that in order that you were to receive your bonus next year, you had to acheive X pounds over the next 12 months by way of charges etc.

I am not whistle-blowing, but just gently warning people that did occur from time to time.

Most loans that I have been lucky enough to repay early - I've done a fag packet calc before calling /or sending the funds over to close the account.

[tomthumb]

i have "carefully"looked through all the fine print and no where does it state that "rule 78" will be applied if payed off early, however when i asked for a early settlement guess what........ "rule 78" was applied!!

 

now the question is...is this legal if it isnt in the terms and conditions of the loan? or does the cca 1974 automatically apply this "rule 78" when you ask for an early settlement figure?....

 

any comments would be appreciated on this subject..."rule78"

[Scrooge]

Ahh ha......the plot thicken

[howardbrown]

silly question time.....what is rule 78?

[joneshousehold]

Here is a brief explanation

http://www.home.co.uk/guides/loan_glossary.htm?rule

[STEVEGOLDSMITH]

hello,

i have paid many loans back early with the good old shabbey, if i have been charged for rule 78 can i write to my bank and demand the money back?

[howardbrown]

Here is a brief explanation

http://www.home.co.uk/guides/loan_glossary.htm?rule

thank you, new to me, the way we are told about early repayment, is it is the outstanding capital, plus 2 montyhs interest

[tomthumb]

If you only have to pay 2 months interest on early redemption then you are not subject to rule 78 in the consumer credit act. You would know if you were subject to this rule if for example you had a 5 year loan and had paid 2 years into it then asked for a final settlement figure, you then would discover that you had paid virtually nothing off it!!!

[norvernrob]

I have a £4600 hp loan over 4 years on my car, I have paid just over 2 years and requested an early settlement figure - just over £3500! The total amount owed is only £3900! I take it this is rule 78 in action!

[tomthumb]

Did it state in your agreement that this would be applied?(rule 78). my loan said it would be calculated as set out in the consumer credit act 1974 and will be intitled to a rebate.(no mention of rule 78).This popped its ugly head only when i asked for an early settlement figure.

 

The problem here is, my loan provider should theoretically then have given me a copy of the "consumer credit act 1974" so that i can figure out any early redemption penalty? They obviously didnt!!

 

This possibly could be argued as an "unfair term in a consumer contract" by not actually making the early redemption penalties in clear language, and therefore you didnt know what you would pay back in regarding any early settlment???

[norvernrob]

Did it state in your agreement that this would be applied?(rule 78). my loan said it would be calculated as set out in the consumer credit act 1974 and will be intitled to a rebate.(no mention of rule 78).This popped its ugly head only when i asked for an early settlement figure.

 

The problem here is, my loan provider should theoretically then have given me a copy of the "consumer credit act 1974" so that i can figure out any early redemption penalty? They obviously didnt!!

 

This possibly could be argued as an "unfair term in a consumer contract" by not actually making the early redemption penalties in clear language, and therefore you didnt know what you would pay back in regarding any early settlment???

 

Nope, rule 78 wasn't mentioned. The letter said the figure was calculated 'in accordance with the consumer credit act 1974, rebate etc etc', exactly the same as yours funnily enough.

 

I'm doing a voluntary termination, as the car isn't worth half the amount they want now anyway. I certainly agree though, nowhere does it mention rule 78, and you can argue that you wouldn't have taken out the loan in the first place if you knew that the company would apply this rule. Even if they did give you a copy of the consumer credit act, you still wouldn't have known they would apply rule 78 as they didn't tell you!

[Cornucopia]

Nope, rule 78 wasn't mentioned. The letter said the figure was calculated 'in accordance with the consumer credit act 1974, rebate etc etc', exactly the same as yours funnily enough.

 

I'm doing a voluntary termination, as the car isn't worth half the amount they want now anyway. I certainly agree though, nowhere does it mention rule 78, and you can argue that you wouldn't have taken out the loan in the first place if you knew that the company would apply this rule. Even if they did give you a copy of the consumer credit act, you still wouldn't have known they would apply rule 78 as they didn't tell you!

 

Hello!

 

Could you tell me what a voluntary termination is? Did you get a loan from the car company or a bank loan???

 

Thanks so much!

[norvernrob]

Hi, Voluntary termination is where you can give the car back without penalty after you have paid a certain amount of the total (usually half). I think if you have any insurances on the loan though you have to pay them (minus the rebate).

 

The figure you need to have paid is usually on the agreement, it's right on the front of mine. It applies to HP, I don't know about car loans in any other form though.

 

It will work out better for me as I can get a better model of my car for £1k less than the finance company want as an early settlement!

[Cornucopia]

Hi, Voluntary termination is where you can give the car back without penalty after you have paid a certain amount of the total (usually half). I think if you have any insurances on the loan though you have to pay them (minus the rebate).

 

The figure you need to have paid is usually on the agreement, it's right on the front of mine. It applies to HP, I don't know about car loans in any other form though.

 

It will work out better for me as I can get a better model of my car for £1k less than the finance company want as an early settlement!

 

Thanks for that!

 

I am curious because we would like to get rid of my car, we have paid two years into a five year HP agreement and we asked them (Hyundai) if they would just take it back. They said no and they don't do what I now know is Voluntary Termination. Do you think this is because we haven't paid half or is termination at their discretion??? There is nothing on the credit agreement, I have been through it with a fine toothed comb!

 

What a bummer! It's a proper gas guzzler and I would love to see the back of it!! Ebay maybe???!!!

[norvernrob]

I'm 99% certain that the figure you need to have paid is half. So if you could hold on for another 6 months you can terminate the agreement and return the car. The finance company has no choice as it is a right. It doesn't matter if there isn't anything about it on the contract, it applies to all car HP as far as i know.

[breadline]

If this rule isnt illegal until 2007 is there anyway that i can request over charges ona settlement in 2005.

 

This has opened my eyes alot.

 

I am just about to file court procedings against lloyds to produce all my loans i have ever heald , thier statements to date or closure.

 

I paid £4800 to LLoyds last year, at the time i did they knew i was ill and unemployed, and i was on reduced payments.

 

Could these extra charges go against anything legal regarding my financial position? I had been covered with a number form payplan although teh ywouldnt represent me as teh amouint was to low.

 

Thanks

BL

 

(Sorry spelling got keyboard problem, i dont think it can keep up with my typing )

[norvernrob]

Hi Breadline

 

 

Unfortunately rule 78 isn't unlawful (which is a disgrace in itself) - it's just a way for the loan company to (legally) rip you off blind for settling early. I would very much doubt you could claim them back as penalty charges.

[norvernrob]

Unless part of the debt is made up of penalty charges then you can't claim any of it back. Unfortunately even if the interest rate was a rip off it isn't unlawful, you signed the contract so there's nothing you can do.

[stahir]

I have a loan with Loyds which I want to pay off with the amount they owe me for excessive charges on my account. I borrowed £2000 initially in 2001 to get married.....in 2003 they offered me a 'top up' of £300....I took it. I paid off the initial loan in Feb 2006...........now i'm still paying for the top up of £300 which will be paid off by Feb 2008.

 

Whats bothering me is the amount i'm paying for that extra £300..........i'll be paying nearly 5 x 300.......roughly £1400.....is this right?????

 

OR ARE THEY TAKING ME FOR A RIDE???

[BBloke]

Thanks for that!

 

I am curious because we would like to get rid of my car, we have paid two years into a five year HP agreement and we asked them (Hyundai) if they would just take it back. They said no and they don't do what I now know is Voluntary Termination. Do you think this is because we haven't paid half or is termination at their discretion??? There is nothing on the credit agreement, I have been through it with a fine toothed comb!

 

What a bummer! It's a proper gas guzzler and I would love to see the back of it!! Ebay maybe???!!!

 

This all relates to whats known as the halves and thrids rule. Basically, if you have a hire purchase arrangement, once you have paid half of the 'Total Amount Payable' sum back you are entitled to return the vehicle to the finance house without further cost. It should really be in a condition in line withits age. Depending on the type of the HP agreement you may have a mileage clause. Pro-rata you should be within the expected mileage. Many people will have bought vehicles on schemes called personal contract purchases - this is just form of HP. There are many branded versions of this - almost every manufacturer will have its own name for this.

 

As someone said, it should be clearly marked on your agreement. Probably in a box titled - Termination - Your rights.

 

That covers the halves bit - now for the thirds. If you don't keep up your payments but have paid at least one third of the total amount payable then the finance company will need to get a court order in order to recover the vehicle from you. They cannot just pitch up and take it off the drive. If they do this - you might be able to recover ALL of your previous payments.

 

Hope that helps.

 

BB

[BBloke]

Thanks for that!

 

I am curious because we would like to get rid of my car, we have paid two years into a five year HP agreement and we asked them (Hyundai) if they would just take it back. They said no and they don't do what I now know is Voluntary Termination. Do you think this is because we haven't paid half or is termination at their discretion??? There is nothing on the credit agreement, I have been through it with a fine toothed comb!

 

What a bummer! It's a proper gas guzzler and I would love to see the back of it!! Ebay maybe???!!!

 

And further to the above......

 

They do do VT - you might not have reached half way. It is not at their discretion but you need to check the type of agreement. Their are some dealers (Rover owners might recognise this) that will offer you a 'credit sale agreement'. This is just a loan and not an HP therefore you have no VT options. You could settle esarlier though in the normal way but you are into the rule of 78. You should get a rebate of charges though. Get a value on the car and see if it exceeds the outstanding amount. Remember - if you VT the dealer will probably get the commission he earned from your finance clawed back from the finance house. By using a CSA he protects his commission.

Again, HTH

BB

[Cornucopia]

This all relates to whats known as the halves and thrids rule. Basically, if you have a hire purchase arrangement, once you have paid half of the 'Total Amount Payable' sum back you are entitled to return the vehicle to the finance house without further cost. It should really be in a condition in line withits age. Depending on the type of the HP agreement you may have a mileage clause. Pro-rata you should be within the expected mileage. Many people will have bought vehicles on schemes called personal contract purchases - this is just form of HP. There are many branded versions of this - almost every manufacturer will have its own name for this.

 

As someone said, it should be clearly marked on your agreement. Probably in a box titled - Termination - Your rights.

 

That covers the halves bit - now for the thirds. If you don't keep up your payments but have paid at least one third of the total amount payable then the finance company will need to get a court order in order to recover the vehicle from you. They cannot just pitch up and take it off the drive. If they do this - you might be able to recover ALL of your previous payments.

 

Hope that helps.

 

BB

 

That's a great help, thanks, although there is nothing on the credit agreement about termination, unfortunately. If we wait another six months we would have paid half, so will try again then. Car is in excellent condition, I only do local journeys so it has only done 5000 miles per year, virtually no wear and tear. So I would hope it wouldn't be a problem. I just want something a bit more economical. Husband bought it for me, thinking I'd love it and I do, but it is an automatic with a 1.6 litre engine which is crap for school back gym back journeys that I do! I get through about £200 a month in fuel which is about the same as the bloody repayment on it!

 

Thanks so much for your all your advice!