Refund Interest - Simple or Compound?

seguna

Hello

A major bank has contacted me regarding incorrect charges that were wrongly added to a loan I had with them back in 2006 which was settled in 2007.

In calculating the refund amount, they added simple interest @8%pa (13 years worth) to the repayment. I remember reading somewhere that such interest should be compounded instead of simple. The difference in final amount between the two methods of calculation is fairly significant.

I wanted to know if you were aware of the case law(s) or legal principle(s) applicable so as to apply compound interest as opposed to simple interest to the refund amount? Or perhaps you can refer me to something to read?

I'd like to request compound interest if at all possible. I don't want to waste time trying to get Compound Interest unless there are strong legal grounds for doing so.

Left to them of course, they prefer to pay simple interest as the figure will always be less.

Many thanks in advance.

[Deleted User]

It's always simple interest. It's a defined redress method - it's not 'left to them'.

They won't change it just for you.

[Deleted User]

seguna wrote: »

I remember reading somewhere that such interest should be compounded instead of simple.

Where do you "remember" reading this?

seguna wrote: »

I wanted to know if you were aware of the case law(s) or legal principle(s) applicable so as to apply compound interest as opposed to simple interest to the refund amount?

There is no such case law which would apply in your case.

seguna wrote: »

Or perhaps you can refer me to something to read?

Long thread on this forum is here;
https://forums.moneysavingexpert.com/discussion/1596473/how-fos-calculate-refunds

Or you can go to the Financial Ombudsman's website...

seguna wrote: »

Left to them of course, they prefer to pay simple interest as the figure will always be less.

It's not just "left to them" though, the compensation is defined by the Regulator and is not somehow negotiable (by either side)

FOS_website wrote:

The financial institution must "pay the consumer interest on each of these amounts at 8% per year simple from the date each payment was made to the date the compensation is paid"

brown1950

Very interesting about compound v simple interest in calculating accurate refunds.
Credit Card Companies calculate monthly interest based on Compound Interest yet when calculating PPI compensation will only compensate based on simple interest ?
The FOS state the following regarding credit card compensation :-


We’d usually expect you to be put in the position you’d be in if you hadn’t
taken out the policy.

So therefore if the Credit card Company charged you compound interest and compensated you at simple interest that would NOT put you in a position you'd be in if you hadn't taken out the policy ?

Am i missing something or perhaps the usual 'defenders' could explain ?

[Deleted User]

brown1950 wrote: »

So therefore if the Credit card Company charged you compound interest and compensated you at simple interest that would NOT put you in a position you'd be in if you hadn't taken out the policy ?

It's only the compensatory interest which is 8% simple. Any associated interest is a complete refund of everything paid, which does indeed (along with the refund of PPI) put the customer back into the financial position they would have been in. The additional 8% simple interest actually improves the position still further.

-taff

brown1950 wrote: »

Am i missing something or perhaps the usual 'defenders' could explain ?

You're missing something.

As above, simple interest is applied to the amount that is being redressed per year in addition to the original redress, which is a refund of all premiums and associated interest. How do you not know this yet?

societys_child

Am i missing something or perhaps the usual 'defenders' could explain ?

You still don't get it.

https://forums.moneysavingexpert.com/showpost.php?p=76008798&postcount=5




How many times must it be explained?

[Deleted User]

societys_child wrote: »

https://forums.moneysavingexpert.com/showpost.php?p=76008798&postcount=5
How many times must it be explained?

I find it most odd that a long term user of this website is even asking the question, let alone repeating it a few weeks later...

[Deleted User]

brown1950 wrote: »

Am i missing something or perhaps the usual 'defenders' could explain ?

Why should it be down to the 'defenders' to explain everything to you?

This is all very basic stuff that anyone can learn about. If you have an interest in this area, it would be worth familiarising yourself with the basics.

[Deleted User]

Deleted_User wrote: »

This is all very basic stuff that anyone can learn about. If you have an interest in this area, it would be worth familiarising yourself with the basics.

Earlier in the thread I alluded to the Financial Ombudsman website. FOS have bent over backwards to explain it there in plain English. I certainly don't intend to repeat my earlier explanation here anytime soon...

Only one more month and the whole debacle is history....

Kentish_Dave

Brown1950, you do realize don’t you that the “defenders” are just patiently repeating actual facts to you, which you seem to ignore.

What’s your aim here?