## Hearing on Consumer Financial Protection Agency

House Committee on Financial Services has scheduled a hearing on the Consumer Financial Protection Agency on 24 June 2009. The testimonies are placed here.

One should especially read the fiery testimony by Elizabeth Warren (it is her brain child after all) and a counter by Alex Pollock (he says it is not really needed).

### 4 Responses to “Hearing on Consumer Financial Protection Agency”

1. A F "Bob" Blair Jr Says:

The testimonies are interesting, but I cannot find any that address the fact that the Truth in Lending Act (TILA) of 1968 does not use the mathematically-true, compounded, EFFECTIVE (a names steeped in mathematical history meaning compounding [^]) Annual Percentage Rate (EAPR). The method used is (as stated in TILA) the actuarial or NOMINAL APR (NAPR) calculated as the rate for a period multiplied by the number of periods in a year. Some one may have tampered with the historic meaning of the name “Effective” to mean including fees, so I will use the word, “Compounded” APR (CAPR). Firstly, the billing lender will establish a daily rate by dividing the initial NAPR by the number of days in a year. That rate will be compounded daily, which makes an APR greater that that what is stated. On an often initial APR of 29.99% the daily rate is 0.082164% calculated as 29.99%/365. Because that rate is multiplied by the previous day’s balance, it is compounded. So, the resulting mathematically –true APR is 34.956% calculated (1+.00082164)^(365)-1.
Credit cards conditions are readable if you try an example on one “sector” balance carried over from the previous month with no transaction during the month. TILA does not seem to allow this compounding each day. The sum of the daily balances are divided by the number day in a period (to find what is call a average daily balance). That average is multiplied by the number of days in the billing period (that was just divided) times the daily percentage rate. That is a form of double compounding. The CAPR depends on the number of days.
Unfortunately, no testifying person seems to understand this. So the untruth in Lending may persist. The 365th root of the named APR should be used for the daily annual percentage rate. And only the final day’s balance used.

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