What Happened to Truth-in-Lending?
Professor Lynn LoPucki sent this email, which I pass along with his permission. Perhaps someone will want to answer his question.
Last month I was a little short of cash, so I left $3,000 on my credit card balance. The bill I got today shows a finance charge of $122. Citibank states that the APR is 14.49%, but by my calculation, the rate charged is 48.8%.
They apparently get their number by multiplying last month’s entire bill – not the amount left on the bill – by the APR. But (1) I didn’t have the whole amount outstanding for the entire month and (2) they don’t charge any interest at all if I pay the entire bill on time.
As I recall, a main purpose of the Truth in Lending Act was to make interest rates comparable by requiring that they call be calculated in the same manner – one that reflects as nearly as possible the true cost of borrowing. Where exactly did that purpose go astray?