HFC And the Use of Rule of 78

O

oosoom

Registered User
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I would be grateful for opinions on the following situation. In August 2006 I took out a personal loan with HFC in the amount of 13200. I have made all the monthly payments of 323.23 each month. At this stage I have made 29 payments in total. I wanted to repay the loan last month and was advised that 12,400 was required in order to close my account. I would like to stress that I am not trying to avoid payment on this loan.

I called the Financial Regulator and was informed that this method was valid for use in this country and that there were no limitations for its use. In the UK as well as other EU countries this rule has either been abolished or limitations applied to its use. Even in the States restrictions have been applied in its use .

I have no faith in the financial regulation in this country and would like other peoples opinion on whether i should take my concerns to the EU because in comparison to other citizens in the EU we are not been afforded the same consumer protection on this issue as they have in other member states and i also believe that this institution is behaving in an umcompetitive manner.

Would appreciate opinions on this!
 
These figures don't seem right.

You say you took out a loan for 13,200? You've made approx. 30 payments of 323.23 and you still owe €12,400???
 
Aren't these very high interest loans? Bulk of first payments would be interest only.
 
Mpsox said:
According to their website, their typical APR is 39.9%
Click to expand...


Glad to see the following on their website :

''HFC Bank Ltd has closed its operation to new customers in the Republic of Ireland with effect from August 28th 2008''
 
I had no clue what Rule of 78 means and found a good explanation [broken link removed].

I assume early redemption was covered in the loan terms and conditions. If so, you're getting what you signed up for. If not, then you may have a basis for action.
 
Mpsox said:
According to their website, their typical APR is 39.9%
Click to expand...

Apologies - had forgotten that HFC were sub-prime.

can the original poster post the term of the loan & the APR.....this would be the reason why so much money still owed rather than the rule of 78 in itself.

There is no European country where interest rates are capped (to my knowledge)
 

The interest rate was 23% On the payments I have made in the amount of 9050.44 only 860 has gone towards decreasing the principal sum. The balance of 8190.44 is interest payments. In essence the rule of 78 increases the amounts that the borrower has to pay on early redemption

The EU have produced a new Directive on credit agreements on consumers and part of this Directive a creditor can ask for a fair and objectively justified compensation.

In the UK the rule of 78 has long been regarded as unfair by consumer organisations, and the OFT has described it as ‘unfair and oppressive’. It has been outlawed in respect of consumer credit loans since May 2005 but it can still apply in the case of unregulated loans.

In the United States this rule can not be applied in the use of mortgages and the if used in other consumer credit facilities the term must not exceed 61 months. The office of financial regulation here have informed me that there is no limitation for its use here any financial instituation here can apply this to whatever products they provide to consumers.
 
But did you not know the rate of interest you were going to be charged when you signed up for the loan?
Did you read the terms and conditions?
Even if the law were changed now would it be retrospective? I doubt it so your own personal situation would not change.
 
I knew the interest rate prior to signing the document.

With out rule of 78: After making 28 payments the situation would read.

166*28=4648(interest of 23%)
157*28=4396(principal)
Principal outstanding = 8804

Rule of 78:
292.51*28=8190.44(interest)
30.72*28=860.16
Principal outstanding= 12348.12

As it stands our regulator supports this as being fair and has imposed no limitations for its use. So obviously any financial instituation regulated by the regulator can use this system if they wish. Other countries within the eu do not support this with such openess as they deem it to be unfair towards the consumer including the uk where it was banned in 2005. I understand that there is possibly nothing I can do about my own situation but i do believe that as citizens of the EU we are entitled to the same consumer protection and that our regulator should be bringing our policies in relation to this rule in alignment with other states.
 
If I have done my calculations correctly,you appear to have taken out a 7 year loan at 23.7% interest.Using a loan amortisation program,after 28 months you would still owe e10900.In your own example , you appear to have just taken an average of principal and an average of interest ,but this is not how loans work.
 
Anything above 23% APR and you are deemed a money lender.

The website for the financial regulator states :

Interest and how it is charged
It is usually more expensive to borrow from a moneylender compared to a bank or a credit union. The annual percentage rate APR is usually at least 23% and in most cases, much higher. Since you usually have to pay back a loan within a few months, it’s best to look at the cost per €100 and the total cost of credit rather than the APR. That tells you what extra amount you have to pay on top of what you borrowed.

Yet HFC were never registered with the regulator as a moneylender yet they charged the 23% and in some cases higher interest rates of up to 39%.
 
Based on my initial analysis, the figures you quote don't tally with the Rule of 78. It is not the fairest method of calculation but it is nowhere near as unfair as the figures you are quoting.

Can you specify the following info please and I will do a more detailed analysis of your specific situation to help you decide on next steps.

1. What exactly is the term of the loan (i.e. how many repayments).
2. Did the repayments start immediately - i.e. did you make your first repayment a month after you drewdown the loan or thereabouts, and every month thereafter?
3. What exactly was the interest rate. The APR should have been quoted on the loan doc. Was it 23% or is there a more exact figure?
4. What is quoted as the "Total Cost of Credit".

In addition, if you have the heart for it, can you look through the terms and conditions of the loan and see what formula applies for calculating the "reduction in the total cost of credit" if the loan is repaid early. Don't worry if you can't face into digging out that one. The other info should be readily available.
 
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