City to consider limit on payday loan stores

The City Council may want to become fully financially informed when considering action on Payday Loans. The current method of calculating the Annual Percentage Rate is what continues to be what was written in the Truth in Lending Act (TILA) of 1968 at Regulation Z, Part 226, Subpart G, Appendix J(b)(1) %u201CThe 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.%u201D That method is called %u201Csimple-interest.%u201D Instead of the current acronym, APR, I will use a mathematically descriptive acronym, SIAPR. The mathematically-true APR is the compound APR, the rate for a unit period compounded for the number of unit periods in a year. I will give that method the calculation-method descriptive acronym, CAPR. The lender currently must write on the loan agreement the APR (SIAPR), which for a 14 day post-dated check on the borrowers bank account for (it the example) $120 to receive $100. That SIAPR is 521.4%, calculated (Using Excel mathematical symbols: add , subtract -, multiply *, divide /, compound ^) as 20%*365/14. If the City wishes for the mathematically-true CAPR to be written also in the first page in 20 point san-serif, bold font, then that CAPR in this example would be 11,497.6%. That calculation is (((1 (20/100))^(365/14))-1)*100. That loan document would continue to list the required APR or 521.4%. TILA requires that the expression of an APR (SIAPR) be within %u201Cone eight of one percent%u201D (0.125%). (Case law state over-expression does not cause harm to the borrower and is therefore ignored.) If the law would compare the CAPR to the SIAPR, the number of the tolerance of 0.125% that the mathematically-true CAPR is above the mathematically-untrue SIAPR would be 87,809 of those tolerances of 0.125%, calculated as (11,497.6%-521.4%)/0.125%. If you don%u2019t understand, then get a local college teacher of graduate Finance. The Now, if someone really wants to pay an interest rate of 11,497.6% then that is his or her choice. The Truth in Savings Act of 1991 uses the compound APR and calls it the Annual Percentage Yield. The United Kingdom and Canada use the mathematically-true compound method. The U S A should use it, too! A F Bob Blair Jr