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AFSA TESTIFIES ON RULE OF 78'S

 AFSA TESTIFIES ON RULE OF 78'S
 WASHINGTON, May 27 /PRNewswire/ -- The American Financial


Services Association (AFSA), in testimony today on H.R. 5170, the "Mortgage Refinancing Reform Act of 1992," voiced strong opposition to Section 4 of the bill, which would bar the use of the Rule of 78's in all consumer credit transactions.
 Appearing on AFSA's behalf before the House Banking Subcommittee on Consumer Affairs and Coinage was Milton Schober, senior vice president, ITT Consumer Financial Corp., Plymouth, Minn. Schober noted that the Rule of 78's is a method used to compute refunds of unearned interest upon prepayment in full of installment credit transactions. This method has been used for decades as a convenient, easy to apply and accepted method of rebating finance charges and for recognizing earned income, he said.
 Schober pointed out that the rule is used only to calculate rebates for prepayment of fixed term "precomputed" loans and has no applicability to prepayments of open-end or revolving credit accounts. Further, the rule does not apply on precomputed loans that go to full term.
 He noted that on shorter-term loans, use of the Rule of 78's compared to the actuarial method does not show significant differences; it is only on longer-term loans that broad differences occur. On shorter-term loans, the use of the Rule of 78's approximates the lender's expenses of acquiring a loan that both borrower and lender anticipated would extend to its full term. Schober noted that many states have taken action to restrict the use of the Rule of 78's on longer-term loans, and this trend is continuing. "Federal intervention to proscribe longstanding credit industry practices, which are the province of state legislatures, is neither indicated nor appropriate in this area," the testimony stated.
 Schober also noted that the proposed bill will not even achieve the purpose of national uniformity, since it would have an uneven effect in different credit markets. He said that AFSA would support what may be needed -- "up front" disclosure of the impact of the Rule of 78's refund method on long-term contracts -- which could be handled by an amendment to the Truth in Lending Act.
 AFSA is the national trade association for non-banking financial services firms, consumer finance and sales finance companies. Founded in 1916, the association currently has 367 members, which operate nearly 11,000 offices nationwide.
 -0- 5/27/92
 /CONTACT: Judy Kent of the American Financial Services Association, 202-296-5544/ CO: American Financial Services Association ST: District of Columbia IN: FIN SU: LEG


DC -- DC017 -- 4360 05/27/92 15:22 EDT
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Date:May 27, 1992
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