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Nationwide BS, how about 40% EAR/APR Overdraft Charges?
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That's too simplistic IMHO.
As per earlier posts, the regulator action was to simplify overdraft charging by eliminating per-day and fixed charges and differential rates for arranged and unarranged overdrafts.
As above, it seemed inevitable that the effect of this would be that headline EARs would increase, as they'd clearly need to do just to stay neutral (from the bank's perspective) if the other charges were outlawed.
However, I don't believe that the entirety of Nationwide's more-than-doubling of their rate can be laid at the door of the FCA and the cynic would see this as an opportunistic exploitation of the regulatory change. Time will tell how their competitors react....
With RBS/NatWest happy to apply Overdraft Control without charge and M&S Bank happy to not charge any fees at 15.9% - clearly 40% EAR appears outwith revenue neutral territory.0 -
I agree with the conclusion but was making a different point about old v new charging structures - I wasn't comparing Nationwide's new charges with those of their competitors but just observing that from a mathematical perspective, to preserve overall revenue when other charges are being banned, EARs would need to increase to compensate for this.With RBS/NatWest happy to apply Overdraft Control without charge and M&S Bank happy to not charge any fees at 15.9% - clearly 40% EAR appears outwith revenue neutral territory.0 -
That's too simplistic IMHO.
As per earlier posts, the regulator action was to simplify overdraft charging by eliminating per-day and fixed charges and differential rates for arranged and unarranged overdrafts.
As above, it seemed inevitable that the effect of this would be that headline EARs would increase, as they'd clearly need to do just to stay neutral (from the bank's perspective) if the other charges were outlawed.
However, I don't believe that the entirety of Nationwide's more-than-doubling of their rate can be laid at the door of the FCA and the cynic would see this as an opportunistic exploitation of the regulatory change. Time will tell how their competitors react....
Entirely expected though.
The regulator is always playing catch-up to the banks.0 -
I notice you are all too quick to comment on an attempt to understand the financial math without you offering any correction to the math itself. It seems you are just one of all too many financial commentators whose grasp on financial numeracy is as tenuous as those who push regulations on the enforcing regulator.I agree with the conclusion but was making a different point about old v new charging structures - I wasn't comparing Nationwide's new charges with those of their competitors but just observing that from a mathematical perspective, to preserve overall revenue when other charges are being banned, EARs would need to increase to compensate for this.
If the value of EAR is perceived as high then a borrower could turn to a personal loan but there are obstacles: first, the loan has a high starting threshold which can push people into using payday loans and second, EAR is not used to calculate the interest, APR is used and they are not the same.
An overdraft has the advantage that it can be paid down to zero without compensating the lender, a legal requirement. Personal loans on the other hand are subject to a Catch 22. Any admin charges that attach to the setup of the loan must be reflected in the APR quoted which historically was not the case. If early repayment is made it changes the true value of APR or the cost to the borrower which can only be determined when the loan has been paid off early.
It was this that drove change because the discount on the total interest payable was unregulated and subject to lender abuse. Just how APR was calculated then and now can be found under The Consumer Credit (Total Charge for Credit) Regulations 1977, Part III Rate of Total Charge for Credit and The Consumer Credit (Total Charge for Credit) Regulations 2010 - Schedule: Calculation of the Annual Percentage Rate of Charge They had an attempt at changing it again in 2012 but it got revoked.
The question is, has financial numeracy fallen between 1977 and 2010. I would say it has fallen but perversely the complexity of calculating APR has increased.0 -
The post I was replying to wasn't "an attempt to understand the financial math", it was simply highlighting that Nationwide's interest rate is higher than that of their competitors and concluding that they're likely to be increasing their revenue rather than keeping it flat. I wasn't disagreeing with either observation but clarifying that I was making a different point in my previous post, that was being replied to. None of the posts concerned required "any correction to the math itself" so I fail to see anything supporting your baseless accusation about financial numeracy.
I notice you are all too quick to comment on an attempt to understand the financial math without you offering any correction to the math itself. It seems you are just one of all too many financial commentators whose grasp on financial numeracy is as tenuous as those who push regulations on the enforcing regulator.I agree with the conclusion but was making a different point about old v new charging structures - I wasn't comparing Nationwide's new charges with those of their competitors but just observing that from a mathematical perspective, to preserve overall revenue when other charges are being banned, EARs would need to increase to compensate for this.
Yes, if people feel they can't afford high overdraft rates, they'll consider other options, but each has disadvantages - thanks for that statement of the obvious that's neither helpful nor insightful ....If the value of EAR is perceived as high then a borrower could turn to a personal loan but there are obstacles: first, the loan has a high starting threshold which can push people into using payday loans
So what? Who said they were the same?EAR is not used to calculate the interest, APR is used and they are not the same.
Your meandering musings never actually seem to reach any meaningful conclusions! I can't speak for any other posters but can't say I'm particularly interested in your idiosyncratic take on the history of APR, so what's your point (that's actually relevant to Nationwide increasing their overdraft interest rate)?An overdraft has the advantage that it can be paid down to zero without compensating the lender, a legal requirement. Personal loans on the other hand are subject to a Catch 22. Any admin charges that attach to the setup of the loan must be reflected in the APR quoted which historically was not the case. If early repayment is made it changes the true value of APR or the cost to the borrower which can only be determined when the loan has been paid off early.
It was this that drove change because the discount on the total interest payable was unregulated and subject to lender abuse. Just how APR was calculated then and now can be found under The Consumer Credit (Total Charge for Credit) Regulations 1977, Part III Rate of Total Charge for Credit and The Consumer Credit (Total Charge for Credit) Regulations 2010 - Schedule: Calculation of the Annual Percentage Rate of Charge They had an attempt at changing it again in 2012 but it got revoked.
The question is, has financial numeracy fallen between 1977 and 2010. I would say it has fallen but perversely the complexity of calculating APR has increased.0 -
Leave the other posters out of it. You have said you don't care about the history of APR you just want to take what lenders offer you without question. Having Financial Numeracy helps people decide which financial product is best for them. The lender won't help, they want you to make a bad choice so that they can profit from it....Your meandering musings never actually seem to reach any meaningful conclusions! I can't speak for any other posters but can't say I'm particularly interested in your idiosyncratic take on the history of APR, so what's your point (that's actually relevant to Nationwide increasing their overdraft interest rate)?
APR has changed overtime to address issues of bad lending practice and by people who care about what lenders get up to. You asked what has this to do with Nationwide - everything. Take their calculator web page, why mention APR when only EAR applies? It only serves to confuse.
Because you lack an enquiring mind you never thought to ask "well, just what rebate would I get if I paid off my loan early." A possible answer can be found in the Consumer Credit (Early Settlement) Regulations 2004 where the math is laid out.
You may see Nationwide as just another lender I see them as a national treasure a place of safety where you can place your hard earned savings in difficult times or at any time. In an interview with online Money magazine the CEO said as much and he went on to say that Nationwide had a good financial crisis. Only two lenders survived relatively unscathed and they were were Nationwide and Standard Chartered.
The CEO also went on to say that Nationwide pays the going rate for staff. I ask where are they coming from - are they coming from the banks that failed and they are bringing their bad habits into Nationwide? Because the shares of Nationwide are held by members they cannot be the asset of a derivative something that brought down Lehman Brothers.
When the Black-Scholes equation was being researched an enquiring mind might also ask where the raw data came from. It came from a market where traders were using common sense and intuition to make their trades but more importantly from a market that was steady and not subject to turmoil. In practice traders trained up on the use of the equation were doing better than traditional traders so it was ineffitable that a lot of people would switch to use of the equation. The casualty here was common sense and common sense and intuition are needed in a volatile market not an equation.0 -
Can't you read? I clearly said I can't speak for other posters and was therefore expressing only my view on that part of your post.Leave the other posters out of it.
No I didn't, you're making that up! I said I "can't say I'm particularly interested in your idiosyncratic take on the history of APR".You have said you don't care about the history of APR
No, I didn't say that either, so that's yet another example of your fiction.you just want to take what lenders offer you without question.
I suppose that simply on the law of averages, at some point you'd say something that I agree with. Well done!Having Financial Numeracy helps people decide which financial product is best for them.
Lenders are commercial businesses who are in it to make profits (yes, even Nationwide). One of the roles of the FCA is to insist that products are advertised in a consistent and standardised way, so as to help consumers make informed choices. One of the ways they do this is to specify how overdraft interest should be presented....The lender won't help, they want you to make a bad choice so that they can profit from it.
EAR has become the de facto standard for comparing overdrafts but to be fair, Nationwide do explain the difference on that page.APR has changed overtime to address issues of bad lending practice and by people who care about what lenders get up to. You asked what has this to do with Nationwide - everything. Take their calculator web page, why mention APR when only EAR applies? It only serves to confuse.
You're making stuff up again here. I do regularly research things that interest me but don't take out loans or pay interest.Because you lack an enquiring mind you never thought to ask "well, just what rebate would I get if I paid off my loan early."
Amazing, something else we agree on.You may see Nationwide as just another lender
Hold the front page! CEO promotes his company as being fantastic, whatever next?I see them as a national treasure a place of safety where you can place your hard earned savings in difficult times or at any time. In an interview with online Money magazine the CEO said as much
So?he went on to say that Nationwide had a good financial crisis. Only two lenders survived relatively unscathed and they were were Nationwide and Standard Chartered.
Daft and increasingly pointless speculation - are you seriously trying to suggest that Nationwide was some bastion of virtue that's now been polluted by dodgy characters creeping in from banks?The CEO also went on to say that Nationwide pays the going rate for staff. I ask where are they coming from - are they coming from the banks that failed and they are bringing their bad habits into Nationwide?
And off you go again, lurching ever further from the point, but does ring-fencing of retail banking away from investment banking not ring any bells with you?Because the shares of Nationwide are held by members they cannot be the asset of a derivative something that brought down Lehman Brothers.
When the Black-Scholes equation was being researched an enquiring mind might also ask where the raw data came from. It came from a market where traders were using common sense and intuition to make their trades but more importantly from a market that was steady and not subject to turmoil. In practice traders trained up on the use of the equation were doing better than traditional traders so it was ineffitable that a lot of people would switch to use of the equation. The casualty here was common sense and common sense and intuition are needed in a volatile market not an equation.0 -
......
When the Black-Scholes equation was being researched an enquiring mind might also ask where the raw data came from. .
Actually it was the Gaussian copula that was used to price CDOs, and is supposedly the Formula That Killed Wall Street.
https://www.wired.com/2009/02/wp-quant/
The Economist has an explanation of it, and states this;
The Gaussian copula was a statistical convenience which merely provided an approximation of a complex relationship. It cannot be compared to Black-Scholes, which revolutionised finance. Black-Scholes created a new market by providing traders with a whole new way to think about and price risk.
https://www.economist.com/free-exchange/2009/04/29/in-defense-of-the-gaussian-copula
I think that the Gaussian copula is a multivariate development of the Black-Scholes formula. But I'm not 100% sure. It's a long time since I've done any Econometrics. and this kind of stuff is way beyond my paygrade, and requires really, really, high level maths that is beyond the understanding of us mere mortals.
Edit - come to think of it, traders are mere mortals as well. You need a big data centre to run the Gaussian copula.
But that's by-the-by, none of it has any relevance to Nationwide BS and the APR on its overdrafts.0 -
.... The Moral Hazard is that over a year compounding not only creates problems for the account holder it drives inflation upwards a problem for society, globally.
Interest has to be paid at some point in time. Monthly, quarterly, half yearly, annually whatever. If the interest is not paid, (or withdrawn in the case of a deposit) it compounds. What else could possibly happen?
And, no it is not a moral hazard, nor does it drive up inflation.
Things like APR and EAR are merely convenient and mandated calculations that allow consumers to compare different products that have different interest payment dates.0 -
Pehaps you would like to critique this?...And off you go again, lurching ever further from the point...
FlexAccount: Before 11th November 2019, arranged overdrafts will be charged 18.9% EAR (variable). For unarranged overdrafts you will be charged 18.9% EAR (variable), capped at £5 per month plus, a fee of £5 for each transaction we pay or return, capped at £45 per month.
The quoted EAR for an unarranged overdraft does not represent the total cost of borrowing because admin charges are not considered. The size of the overdraft [DEBT] required to incur an interest charge [iCHG] of £5 can be calculated from (1).
DEBT = iCHG/((1+EAR)^(DiM/DiY)-1) or in Excel =5/(POWER((1+0.189),(31/365))-1) = 337.5794.......(1)
When nine transactions of £1 are paid in the same month, it causes the [DEBT] to rise to 346.5794 and the value of [iCHG] to rise to £50. Equation (2) describes the value of EAR that represents this [DEBT].
EAR = (1+(iCHG/DEBT))^(DiY/DiM)-1 or in Excel =POWER((1+(50/346.5794)),(365/31))-1 = 388.78%.......(2)
Equation (3) describes EAR when the transactions were not paid:
EAR = (1+(iCHG/DEBT))^(DiY/DiM)-1 or in Excel =POWER((1+(50/337.5794)),(365/31))-1 = 408.48%.......(3)
Equations (1), (2) and (3) were transposed from (4)
iCHG = DEBT*(1+EAR/100)^(DiM/DiY)-DEBT or in Excel =DEBT*POWER(1+(EAR/100),DiM/DiY)-DEBT.......(4)
The interest (4) charged before 11th November 2019 for an arranged overdraft. After 11th November 2019, an EAR of 39.9% will represent the total cost of borrowing as no admin charges will apply.0
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