Rule of 78 vs Actuarial formula

moneyoff

Hi Guys,


MBNA told me the following re the basis on which it calculated my refund of the Payment Protection element of my loan:

'I agree with your point that the Rule of 78 method of calculation (for the early settlement of a loan) was replaced by the Actuarial method of calculation in 2004. However the actuarial method of calculation was adopted for the use of calculating early settlement of the loan only (or the capital borrowed) and not the Payment Protection element of the loan.'

However my understanding is that the Rule of 78 method of calculation was considered to be unfair to the borrower which is why the actuarial formula, as set out in The Consumer Credit (Early Settlement) Regulations 2004 which into force on 31 May 2005, was introduced to replace it.

Is it in fact the case that notwithstanding The Consumer Credit (Early Settlement) Regulations 2004, lenders are in practice free to decide for themselves which basis of calculation (Rule of 78 or Actuarial method) to apply to a loan or part of a loan?

When I tried to get further information re this from MBNA all it would say was:

In the terms and conditions of your PPI policy it clearly states that: 'If you decide to repay your loan early, cover will cease and a premium refund may be given. The amount of the refund will be less that [sic] the proportion of the total premium relating to the remaining period of the insurance'. In essence this is saying that you will not get a proportional amount back.

Anyone know the answer to the question posed above?


Thanks in advance for any help.:)

-taff

Your question doesn't make sense. The redress or refund of PPI paid is not related to the capital of the loan.

moneyoff

thanks for your reply

sorry i should have explained in my 1st post that having taken out my loan i cancelled the Payment Protection Cover and got a partial refund of the insurance premium - i.e. what MBNA referred to as the Payment Protection element of the loan

the question is what's the correct basis for calculating that refund of the Payment Protection element - Rule of 78 or the Actuarial method?

-taff

Again, it doesn't apply, because as you've already been told, neither method is related to refund of PPI premiums, they're related to the capital of the loan.

amersall

How long did you have the loan before you cancelled?.

Was the PPI Single Premium?.

What was the original PPI and interest amount?.

What rebate did you receive?.

If this was Single Premium and depending on when you cancelled the PPI, you may have paid a fair bit of the PPI back and most of the interest but the remaining PPI is still on the loan to term end with interest.

~Brock~

Having worked with the actuarial method of calculation I can assure you that, although in a lot of cases the difference can be negligable, in some cases the difference is huge and not in the customer's favour.

Also, at least R78 was pretty easy to understand. Look at the new formula. It still makes me laugh that most local TSO websites state that they, or CABs, can check whether a settlement figure is correct on behalf of a consumer when in reality the individual officers wouldn't have a clue where to start.