The Deception of Dates

There are days when I absolutely hate the month of February.  And not just during that month with its sub-zero temps, dark days and endless snow, but when the fact that it has only 28 days wreaks havoc on system lending calculations. 

We work to reconcile payment calculations from literally scores of other systems during our project definition process with clients and users. The key is to determine how a particular routine deals with February.  That is as challenging a diagnostic exercise as it gets.

Too many design characteristics draw from the outmoded "360 day year" methodology of 30 years ago.  February 1st to March 3rd may indeed be "30 days" but it most certainly is not a calendar month and Regulation Z, for instance, certainly isn't going to recognize that time period as 1/12 of a year.

It's not merely February but the fact that months have different lengths in days.  A forgotten fine point is that while Appendix J to Reg Z says that "All months shall be considered equal", actual calendar days have to be counted for fractional month periods.  That doesn't jibe with many "360 day year" conceptions that we see put in use.

Like everything else, the devil is in the details.  Consider January 31st to February 28th; it's a month when counting forward for interest accrual purposes but can be a fraction of a month with the Federal Calendar in computing the APR.  That first glance at the dates can be deceptive.

Every Fee "Affects" the APR

When gathering information to define software, one of the critical areas for accurate disclosure is determining the nature of any fees that will be charged by the lender. A really popular industry description of specific fees is that "this fee affects the APR".

It's become clear that statement is intended  to mean that a fee will "make the APR a different value than the interest rate" (See the post "the Interest Rate and the APR").  From our consumer credit math purist standpoint, every fee "affects" the APR.

All fees in a lending transaction are either in the Amount Financed (Truth in Lending Act definition) or the Finance Charge (also TILA defined).  The sum of the AF + FC equals the Total of Payments.  As a general rule, the AF and FC are mutually exclusive and collectively exhaustive.  Fees are either in one or the other but they can't be in both.

Consequently, a fee that is included in the TILA Amount Financed does indeed affect the APR calculation since the APR measures the relationship of the Amount Financed to the Finance Charge over the time period of the loan.

So, our goal in defining software projects is to help clients determine which fees can potentially be required to be in the TILA finance charge.