Do you know about the Rule of 78 imposed on early settlement of loans?

Photo: 123rf.com

I write to highlight something very important to consumers, especially hire purchase borrowers. I recently underwent an unpleasant experience when I looked into early settlement of such a loan from a local bank. The silver lining of the experience is that I managed to gain knowledge on how perhaps we have been duped by the financial industry without our knowledge. This new “wisdom” that I gained is about the “Rule of 78”.

In 2014, a letter from a consumer organisation published by The Star pointed out that the Rule of 78 practiced by the banking industry for small loans is recognised as unfair practice – “it has been abolished in the United Kingdom since 2005” ("Stop using Rule of 78 for loans, banks urged"). I am surprised that an issue as important as this to borrowers and consumers was then allowed to disappear from the public’s radar without action by the authorities.