Lately — since I started fooling around with my comment policies, and constantly changing settings — TypePad has been sending me e-mails every time someone tries to comment. It’s pretty irritating, but it’s easier to keep deleting them than to republish my entire blog to change the settings. Besides, it reminds me to keep checking comments, so I can approve them — or most of them. (That, in case you forget, is the current policy. You don’t have to authenticate, but it doesn’t post until I approve. A drag, but blame those who don’t play well with others.)
Anyway, as I was deleting e-mails in batches, I noticed there was a comment from a name I hadn’t seen — Bill Burbage. I checked. No comments awaiting approval from a Burbage. I checked other ways — sniffing around the docks, leaning on my snitches and such. He’s not someone I banished under some pseudonym (that was a disappointment, as I hoped for some mild mystery or other to be solved). So I got all radical and wrote back to him. He replied as follows:
Twice I have tried to post a message on your blog. The first time I thought it was rejected because when I entered the "code" word I put spaces between the letters. That’s the way it looked to me. I don’t know what happened the second time.
My message concerned the annual interest rate (APR) on a periodic interest rate of 15% every 14 days. The 391.07% figure put out by the Consumer Financial Services Association (CFSA) is an egregious error. They have succeeded in selling it to The State, The Wall Street Journal, NBC Television and even the Federal Trade Commission’s Consumer Protection Agency website. I have emailed the CFSA at 515 King Street in Alexandria, VA and asked how they computed that APR. After mulling it over for12 days they answered: "Our members calculate the APRs in accordance with the federal law requirements in Appendix J of the Federal Reserve’s Regulation Z. In that regard the 391.07 APR is accurate in accordance with federal law for the fourteen day loan."
I pointed out to the CFSA that if something grows at a rate of 15% every 14 days, in 26 periods it will grow to 37.8568 times whatever you started with. Compound interest or exponential growth is such a powerful phenomenon that it is literally unbelievable until you take out your scientific calculator or Excel spreadsheet and ‘do the math’. Albert Einstein called it the 8th wonder of the world.
It would be greatly appreciated by this reader if somebody would explain how the CFSA arrived at that 391.07% figure.
Thanks for the quick reply. I have been unable to get any response at all from the editorial staff at the WSJ. I think they think I don’t know what I’m talking about, but I can’t get them to say so.
Being the helpful guy with the jiffy service that I am, I responded thusly:
Well, I certainly don’t know what you’re talking about, but then I don’t write about that. My usual response to such subjects — and I’m not terribly shy about it — is, "That’s something about money, right?" Not my forte. I just know that no matter the terms, it seems like I always end up paying more in interest than want to — unless it’s me getting the interest, in which it never seems like much.
The "miracle of compounded interest" I’m always hearing about only seems to work with money flowing away from me. I think it tends to work in favor of people who have a lot of capital to start with. I think if I had a lot of capital, I wouldn’t much care what the interest did. I’d still have a lot of capital.
Anyway, thanks for trying. I’ll put this on the blog for you. And I’ll ask your question for you. I can’t guarantee a satisfactory answer (I probably won’t understand it, anyway).
Of course, I’m not quite as stupid as all that; I just think modesty is becoming, don’t you? I’m almost entirely sure that this is about predatory lending — and most likely the payday loan version we’ve written about most recently. But that’s about all I know, or think I know. As for the rest, well, if you think I understand personal finance, ask my wife. Or anybody who works with me. It’s one of those things I’ve tried hard not to learn, because what little I have learned about it has never been pleasant. I’m not dumb, but I’m not Einstein.
Knowledge can be dangerous. For instance, I’m the only full-time person in the Editorial department with a working understanding of QuarkXpress other than Mike Fitts, who until today was cruelly absent in the Rockie Mountains since July 6, causing me many long days and nights. Bad case of too much knowledge.
You may find this hard to believe, but I’ve been plagued by knowing too much quite a few times before. In Wichita, I bothered to figure out how the UPI photo machine worked back in the mid-80s (it was a very strange machine that operated according to strange principles). The nearest official UPI repair guy was, I think, in Oklahoma City. I spoke to him for a long time one night when we really, really needed one of their photos. Big mistake on my part. I was in charge of the whole newspaper every night after 6 p.m., which sounds grand, but I often spent the night with my head down the UPI machine (that’s enough; I know that sounds like a straight line).
When I worked in Jackson, TN, before that, I figured out how to operate the lighting setup in the photo studio. I had made the mistake of mastering the 35mm SLR earlier. So if anybody in the world walked into the building needing to have a mug shot taken and our two or three shooters were out, guess who stopped everything to set up the studio for a shoot? The putative city editor.
So you can have your financial expertise. If I learned about that, I might have to balance somebody’s checkbook. Maybe even my own.