Extra day in leap year

lisyloo

My understanding is that my lender is charging me an extra days interest this year (as it's a leap year).

I am suprised they can get away with this.
For exmaple if they advertise 4.5% per YEAR then I would expect it to be that when the definition of a year is as we understand it.
Not 4.5% most years and 4.52% in leap years.

My lender assures me this is all legal.

Can any of the brokers confirm?

DiggingOut

What is the daily rate? Some use annualrate divided by 365 even in leap years, but charge no interest on 29/2 (Nationwide is one that does this). Others use annualrate/366 for leap years, and charge interest for 366 days.

If they use annualrate/365 and charge for 366 days, sounds like they are being dishonest. Whether they can legally do this or not, I don't know.

It would be about 4.512%, BTW.

lisyloo

My figure was a complete guess, so not bad !!

I have confirmed with Alliance & Leicester that they WILL be charging extra.
I had a great deal of difficulty getting their call centre people to understand what I meant but they have confirmed that I WILL be paying extra i.e. they do not reduce the daily rate and charge for 366 days.

They also told me this was legal.

I haven't so far pursued it any further because the amount of money isn't massive (about £30 for me) but I thought I was spurred on by the thread where people are claiming back 8p for similar overcharging by BT for line rental (I honestly can't be bothered for 8p but maybe I should for £30).

I would be interested to know the legality.

BTW - I believe there are some differences on savings accounts too realted to the same issue.

System

Think of it like this - you've had their money for an extra day so morally if not legally the point is in their favour. Obviously the fine print may get you a let out but I'd be surprised if its isn't watertight

lisyloo

I can see that point, but there is a question about advertising.

The common understanding of year is 12 months.

If they advertise 4.5% per year (or whatever) then surely they should stick to that (or define a year as strictly 365 days).

I did look up year in the glossary of my Ts&Cs and it was the common understanding of year i.e. it was not specified as only 365 days it was a "calendar" year.

Also morally we should get 366 interest on savings accounts. My feeling is that you will not find the morality is equal between debts and savings i.e. it will be in favour of the banks.

I suspect like you that it is watertight which is one of the reasons I haven't written letters etc.

payless

No I see Lisyloo's point, the rate is expressed as % pa, not % per day

Lisyloo I understand you are on Interest only- is you monthly payment the same (except for rate changes)
ie 1/12 of the annual cost , or do they charge differently based on days in the month?

DiggingOut

Good point, payless. Lisyloo, have you actually checked the numbers to see what you are being charged? You are on annual interest as well, aren't you? I would expect the interest payment to simply be annual rate times balance divided by 12.

I just wonder if the person who told you they charge an extra day's interest knew what they were talking about. I've actually talked to customer service people at banks who were wrong! ;D

lisyloo

Lisyloo I understand you are on Interest only- is you monthly payment the same (except for rate changes)
ie 1/12 of the annual cost , or do they charge differently based on days in the month?

My monthly payment stays the same but they actually debit my statement according to days in the month.
This means there can be slight discrepancies if I get a balance part way through the year.
For example at the end of February I should be slightly in credit.
Things get a bit out of step through the year, but it should be right at December 31st.

have you actually checked the numbers to see what you are being charged?

I haven't tried doing the calculation.
I think it might be quite hard for me to do that for two reasons.
1) My balance was not correct at 31st December as I started in September and therefore was underpaying slightly on a daily basis.
2) Because of interest changes and late collection I am unsure which balance to use. Let me explain with an exmaple.
BOE raise rates 11/03. A&L raise rates 12/03.
A&L don't get their a*** in gear to collect in 12/03 so collect 2 lots in Jan (I presume they are charging me interest for THEIR late collection).
This means my balance on my end of year statement is artificially high due to one months uncollected increase.
Quite confusing to work out what to use as the balance to use for next year.
If you know how to work it out then let me know.

I just wonder if the person who told you they charge an extra day's interest knew what they were talking about.

I had a great deal of trouble explaining it.
To be honest I think I understand the concepts better than most of the call center staff.
However I believe that I did establish that I would have to pay for an extra day in a leap year and they told me it was legal (from experience I would say that organisations are not always correct legally - I have won an endowment mis-selling case against L&G, TESSA case against Britannia and dual rate mortgage case against C&G - so I don't accept they are always correct anymore).

payless

So if they DD the same amount each , but add interest monthly to your mtg account (different lendersdo things a different way) this extra day will show up very clearly on an interest only mortgage- if it was not for the "initial interest/ rate charges issues.

Can't find much to prove which is legally correct -
morally I agree its an annual rate, and a leal year is still a year.

But up to you whether you want to take it further, ask for where this is covered in the mortgage terms and conditions, as otherwise they are not charging you the current yearly rate.

lisyloo

Yes, you are right, it should show up in February as I would get charged 29 and not 28 days.

I will get my statement about March 2005

The fact that the interest rates have been changing and the fact that don't take it straight away and then take 2 lots because they are late, makes it quite hard to see what's going on.

BT at least seem to have agreed that they shouldn't be charging people for the extra day.

I guess it's just one of those things !

lisyloo

I have checked a few things this evening.

My annual statement only shows the total interest for the year.
I believe I know about the varying monthly charges because I called them up when I saw a slightly higher balance on my credit report, so I will not be easily able to see what they are charging me in February.

I should however be able to see whether they have charged me for 365 or 365 days.

A year is defined as "the period from 1st Jan to 31st December".

At the moment I am tempted to think they can only charge me the yearly figure for 366 days from the brief bits I've read.

I'll wait til next year and decide whether I have the time to pursue it for £30.

I won't be pursuing BT for 8p.