NOW on PBS: Elizabeth Warren on the Economy
November 16, 2009
What exactly is going on with the economy? Stocks are up and big bonuses are back, but while they’re throwing parties on Wall Street, there’s pain on Main Street. One out of every six workers is unemployed or underemployed, according to government statistics – the highest figure since the Great Depression.
This week NOW gets answers and insight from Harvard professor Elizabeth Warren, who’s been heading up the congressional panel overseeing how the bailout money is being spent. Watch below!
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Americans for Fairness in Lending 
An excellent research paper was given by the Consumer Federation of America (also on behalf of the Consumer Union, Consumer Action, the National Asociation of Consumer Advocates, the National Consumer Law Center and U S PIRG) as testimony before the House Financial Services Committee concerning H. R. 3904, the Overdraft Protection Act of 2009 on October 30, 2009, http://www.house.gov/apps/list/hearing/financialsvcs_dem/fox_hr_3904_overdraft_testimony_10_30_09.pdf . Of great importance is the last page (page 22) on which is a “Chart: The High Cost of Bank Overdraft [closed-end]… Loans”. On it are listed 16 banks and their overdraft charges for an overdraft of $100, and the APR for 7 days for the overdraft to be paid. That APR is the Nominal (simple-interest) Annual Percentage Rate, calculated as the rate of a period multiplied by the number of payments in a year. That is the method listed in the Truth in Lending Act of 1968. It is not the mathematically-true Compounded APR (historically called the Effective APR). It is calculated by compounding [^] the rate for a period for the number of periods in a year. The Truth in Savings Act of 1993 uses the Compounded APR and calls it the Annual Percentage Yield. It is a long story why Senator Proxmire could not get the compounded method used in 1968 .., largely because bank interest opposed it (although I have not found verifiable evidence).
One of the typical banks listed (the first) is the Bank of America on which the charge is $70 for the 7 days. The APR (NAPR) is listed properly as 3,640%. The calculation is not shown, but it is the standard Nominal APR method ((70/100)*(365/7). The mathematically-true, Compounded APR (CAPR) is Calculated as (((70/100)+1)^(365/7))-1 … times 100 for percent = 103,816,213,832,375%. TILA allow an error of tolerance in expressing the APR of 1/8th of 1 percent (0.125%). The mathematically-true CAPR is not merely slightly over 1 of those 0.125%’s from the NAPR, it is 830,529,710,629,880 of those 0.125%’s from the Nominal APR.
If the overdraft was only $1 the NAPR would be 25,550% and the CAPR would be 5.1203E+675, astronomically different
Changing TILA to use the mathematically-true APR is a one page bill stating, “wherever the word “multiplied by” appears change it to “compounded for”. This should not affect the propensity for persons to borrow.