Board of Governors of the Federal Reserve System (U.S.), 1935- and Teeters, Nancy H. "Statement before the Subcommittee on Consumer Affairs of the Committee on Banking, Housing and Urban Affairs, United States Senate." December 11, 1979, https://fraser.stlouisfed.org/title/943/item/36620, accessed on January 31, 2025.

Title: Statement before the Subcommittee on Consumer Affairs of the Committee on Banking, Housing and Urban Affairs, United States Senate

Date: December 11, 1979
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image-container-0 For release on delivery Expected at 10:00 a.m* (E.D.T.) December 11, 1979 Statement by Nancy H. Teeters, Member Board of Governors of the Federal Reserve System before the Subcommittee on Consumer Affairs of the Committee on Banking, Housing and Urban Affairs United States Senate December 11, 1979
image-container-1 Hr. Chairman, I am glad to appear before your Subcommittee today to offer the Board's comments on S. 2002, a bill that would require the use of the actuarial method in computing rebates of unearned finance charges in transactions scheduled to be paid in more than 36 instalments. The Board supports the principle of curing abuses that arise from the application of the Rule of 78's in long-term transactions. The Board, however, has serious reservations about whether this problem should be addressed on a piecemeal basis or whether a more comprehensive approach addressing many of the problems isn't preferable. Further, the Board ques tions whether this is an appropriate area for federal preemption or whether the matter is better left to the states under a revised Uniform Consumer Credit Code or other comprehensive model act. Hopefully, these hearings will shed enough light on the problems associated with the Rule of 78's that it will be taken care of at the state level so the Congress need not act. The actuarial method of computing rebates required by the bill is basically fair to both the creditor and the consumer. It is based upon the same actuarial principles that are used to compute the annual percentage rate for Truth in Lending purposes, and its application in computing a rebate to the'consumer of unearned finance charges upon early prepayment will yield the «annual percentage rate disclosed. Under the alternative sum-of-the- digits method commonly used for computing rebates, the so-called Rule of 78'8, the finance charge is earned sooner than under the actuarial method. As a result, when a note is repaid in full before maturity, a creditor has earned more finance charge under the Rule of 78 's than would have been the case if the actuarial method were used. Although with respect to early pre payments, there is some justification for a creditor's receiving a greater
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