The big McMansion picture in my last post reminded me that I had to finish watching Maxed Out, a film about the credit card industry. You can watch it for free (albeit in low quality) on Google Video [90 minutes long]. The very first scene includes a real estate agent selling homes with crazy stuff like elevators, two dishwashers, and wine caves.
My Twisted Review
The purpose of the film was to “raise awareness of how credit and lending issues are affecting society.” I think this is a admirable purpose. However, as someone who is familiar with credit card companies and all their practices, my primary thought on this film was “duh”. Please watch out for large amounts of sarcasm and cynicism ahead.
Gasp! Credit card companies target the stupid, the poor, the rich, and everyone in between. They charge huge fees and enormous interest rates if you pay late. They will even offer credit to those who just filed bankruptcy recently, because they know (1) they can’t file bankruptcy again for several years and (2) they are already shown an inability to handle their spending. You could be dead or fictional and still be receiving card applications in the mail.
However, too often in the movie I heard phrases like “Yeah, I did sign it without reading…” or “I figured if they offered me money, it meant I could handle it” or “I never talked my kids about credit cards before sending them off to college” or “I know, I know, I should have read the fine print”. Don’t make it so easy for them, please…
Gasp! Credit card companies target college students. We’ve already seen that at Stanford, nearly 70% of the students have parents earning over $100,000 per year. Of course students are targeted! Mom and Dad will pay up. It’s the same reason Abercrombie and Fitch makes so much money. If the US government has recruiters on campus to convince an 18 year-old to join the Army, why can’t Visa try to sell a credit card? It would seem as adults, they have the right to decide for themselves.
Gasp! Debt collectors are not nice people, and will use mean tactics to get you to pay up. My mistake, I had envisioned fuzzy bunnies leaving scented pink notes asking me to pay back money where I was already six months late…
Real Underlying Issues Are Ignored
I fully agree that credit card companies can be heartless, mindless, unethical, profit-driven companies. But Visa and Mastercard are only two of 100,000 companies who would gladly take my money no matter how broke I was. Credit card companies sell money. Apple sells iPods. Walgreens sells drugs. If Apple convinces a broke college student to buy an iPod, are they to blame? Is it wrong for a drugstore to sell a $70 prescription (of which $20 is profit) to a person on Medicare? These two questions reveal the true issues that need to be addressed:
First, why are people buying stuff they don’t need? Why do people feel entitled to things that they haven’t earned the money to pay for? Cars, iPods, jewelry, clothes. There is something fundamentally wrong here. It’s easy to blame others, but take some responsibility, people! Perhaps Dave Ramsey is right in that some people need to stick to using cash-only.
Second, why are people using credit cards for things they do need? The rest of people are using credit cards to make ends meet. Groceries, medicine, gasoline. Again, this is a greater problem than limiting $40 late fees.
Some Interesting Facts
– The university in the film (forget the name) received $13 million from MBNA for the right to use the official school logo on their credit card. Hmm…
– Many people despise payday lenders. Did you know that Wells Fargo is a major funding partner with Cash Advance, a big payday loan chain? Wells Fargo also bankrolls CashAmerica, a huge pawn shop chain. Many other major banks have similar arrangements loaning money to such “predatory” businesses. So save some of your anger towards them as well.
– The US Government is a huge debtor. We pay more in our in interest payments on debt (our own version of the “minimum payments” from credit cards) than we spend on education, homeland security, and healthcare combined. Each citizen’s share of the national debt is now over $30,000 each.
Why I Still Like This Film
Although I don’t fully agree with the one-sided presentation, Maxed Out hopefully will accomplish it’s goal of promoting awareness. Credit cards are not your friends, they exist to make money. If the truth outrages people enough, then hopefully they shred all their credit cards. Or they could place enough pressure on their elected representatives to make some changes. Or if they think they are up to it, they could turn the tables by taking advantage of loss leaders like credit card rewards and 0% interest loans and grab some of that money back. It’s not personal, it’s just business. I’m here to make money too. 🙂
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Yeah, I really didn’t understand what payday loans were — I mean, besides the obvious. But they are actually an alternate means of credit for people (I guess) who can’t use credit cards or get credit in any other way. So their future earnings are used to secure the debt instead — and I’m sure at ridiculously high rates. But a person can probably go back again and again to their “payday loan” for more money like it’s a line of credit. Now I see why there is such a big business attached to it. It’s wrong really — and should be stopped. There’s too much room for abuse. It could turn people into virtual slaves.
Nice story, and credit cards are very powerful tools which may not be appropriate for every one.
that’s always one thing that bothers me about this argument…everyone blames the companies but not the people. Sure they can be predatory at times and should be regulated but why should i be sorry for someone who doesn’t read the fine print or takes out a home for too much money?
Credit is a good thing if used properly but used poorly and ur in heaps of trouble.
I agree Jon, I want to see a movie that takes about the fundamentals: why are we so consumption driven? what can we do to change it?
by all means stop payday loans. Forget the guy that needs to get his car repaired so he can go to work so he can earn money to pay his rent. He’ll be way better off not getting the car repaired, losing his job, gettin kicked out of his apt. etc. OK — I’ll admit that payday loans do more damage than good. But sometimes the kids *have* to eat or the car *has* to be repaired. Readers of this blog likely have money stashed away, relatives they can go to, credit cards/lines they can tap into, or retirement accounts they can borrow from. A lot of americans don’t.
Johnathan is right — America is on a spending binge. Just like a drinking binge — there is going to be a hangover and it isn’t going to be pretty (credit goes to biz week or wsj for this line, I can’t remember which).
I think there’s a big difference between selling debt and selling a product. You buy the iPod, you are out $200. You get behind on your credit card, and the amount you pay back goes up and up and up, relative to the original purchase.
Of course, Apple will offer financing to buy computers, and then it’s an apples to apples comparison, if you will.
I watched that film a few months ago on Netflix. I got annoyed at how they kept trying to blame everything on the big evil credit card companies. Frontline’s “Secret History of the Credit Card” was a much better watch.
A controversial 20th century philosopher once stated (paraphrasing) that no one can be lesser than their wealth. The point being that those who posses more wealth than they are capable of handling will squander it. In effect, the market redistributes it to someone more capable. Witness the trend of poor lottery winners who burn through their winnings and wind back up poor.
Knives can be either a very useful tool or a danger to the user – depending on the user’s competence.
I liked the movie. Maybe it was a little bit dramatic, but hey at least they are trying to reach people. Not everyone is smart enough to think these things through or even to read personal finance blogs. In my case, I used credit to get through tough times. Using credit to help with stuff I needed in anticipation of future income. As soon as my balances grew the cards changed terms on me increasing the interest rates 200-300% at that point I couldn’t get ahead and I couldn’t go back. I’m all for getting the word out about how predatory credit card companies can be. Can’t hurt.
The guy can take the bus, and save money to have the car repaired. Sorry, I don’t think that’s a great idea. If a person has a job and a car, they ought to have a credit card. If they don’t, there’s something wrong with their spending habits. They shouldn’t be borrowing against future earnings at high interest rates. That’s just throwing him into the abyss.
Mathematically speaking, if person A can’t afford to live on the money they make, how does straddling him with some high interest debt for a year or so (before they refuse him anymore payday loans), going to help him? And as far as I understand, this is a secured debt. The guy can’t go bankrupt on payday loans, so he becomes an indentured servant to the lender. That’s as bad as it gets. Poor AND saddled with un-reducable debt.
i jsut watched the movie….one thing i did like though was the focus on the government and how they recklessly spend as well as how bad the bankruptcy law was…
I am one for free markets: if you don’t like smokey bars; don’t go inside, if you don’t like being overweight; don’t eat at McDonalds, if you don’t like high interest rates; don’t go into debt. Don’t blame the company for a person’s bad decisions.
However, if some of these companies aren’t regulated properly our economy could eventually take a big hit (I believe Jonathan has touched on this in earlier posts). How does a service economy survive if everyone’s income is going towards paying off debt?
If given a free pass corporations can become to greedy. I don’t think anyone wants to go back to the days of child labor and 80 hour factory work weeks.
Mimi,
Do you know how much bus fare is these days? In some large cities, public transportation is no bargain and is very costly and it’s actually cheaper to get around in a clunker than public transportation.
Just shows one more way how our elected representatives sell us out because the people that pay for their reelection are the banks and big corporations. There should be a law that every House and Senate representative must wear patches on their suits for their “sponsors” like Nascar race car drivers do so when they get up to speak for or against a bill we can know exactly who they are speaking for!
Karla,
and that’s assuming public transportation is even available in a given area.
This ‘movie’ carries obvious political agenda – corporate, ‘greedy’ capitalist world is to blame. There is no personal responsibility. No wonder all of the D-* senators & congresspeople were presented as protectors of the middle class (?), while all of the R-* ones as shameless predators conspiring to rob the ‘working class’.
This became obvious from the first minute when the worst president evah Jimmah appeared. (spits in disgust).
Last point — if this guy is getting a payday loan to fix his car — then payday should only be about 2 weeks away. So, in two weeks he will have the money anyway, right? No, he won’t? If he doesn’t, he gets to roll it over another 2 weeks, with more interest. Payday loans are TRIPLE DIGIT interest. Often, 15% every two weeks. That means that roughly every seven weeks, the guy gives up a paycheck to interest (not counting what he borrowed). Bad Deal!!
And if he does have the money in 2 weeks? Great, then he can fix his own car and not get involved with any of this. The bus for two weeks is not so bad. Lots of us rode on the bus, no biggie. Now a food for children argument might make me think differently, but if I was that poor I would go on public assistance to feed my kids, not to a predatory lender.
Sadly I’ve learned two friends have each racked up over 6k in credit card debt – not on 0% cards – and I can’t figure out what they’re thinking. I sent them links to 0% cards with 0% fees and they still won’t switch. “Nah I’ve got enough credit card problems.” or “How will I know when to move the money again?”
Egad! Set a reminder for 10 months out on your Yahoo/Google account. Set a reminder in your cell phone! Set automatic payments through your bank. Seriously, how are people so bad at this?
We run every bill we can through our credit cards as it gets us points. If we’re already spending $400 a month on food at the store, then wouldn’t it make sense to use a CC for that? Cable, cell, internet, etc. If can be paid by CC, take advantage.
FWIW, my dad told me one hugely important thing when I left for college:
Get a credit card, use it at least once a month and ALWAYS pay it off. That credit card is now 16 years old and my credit score is over 800.
Of course, dad never passed on the wisdom of buying a home. Grumble, grumble. Had I bought a place in San Diego in 97 I’d have a nearly paid for home with 600-700k in equity. Live and learn. I’ll pass that lesson to my kids.
I’m a little irritated that they try to tug on your heart-strings with the mothers of the college kids who committed suicide. They should be blaming themselves. Horrible as that is to comprehend, try to argue against my point. They failed as parents. Gee, I’ve never heard this before. Parents of children who mess up trying to blame some establishment. How novel.
Next time, when your child comes home depressed, maybe you *should* ask him or her why and try to coach them through it. Better yet, arm them with the knowledge before they get into such messes. Oh wait, there’s no law against poor parenting so never mind. In this country, we need laws to tell us what to do.
Yadda.
Neither a borrower nor a lender be;
For loan oft loses both itself and friend,
And borrowing dulls the edge of husbandry.
This above all: to thine own self be true,
And it must follow, as the night the day,
Thou canst not then be false to any man.
William Shakespeare, “Hamlet”, Act 1 scene 3
I reviewed this documentary as well. I was unimpressed with it. The only thing I did learn was about the bank lobbyists.
Thanks for the Shakespeare quote, try feeding hungry kids with it. You can only do that if it is written on a loaf of bread. Next, I guess we’ll say “let them eat cake.”
If Apple really cared that you could afford something, maybe they wouldn’t accept credit cards? Only debit, cash, or check. How likely do you think that is? 🙂
I agree that people need to take more responsibility for their indebtedness. However, I disagree with the statements that I person should take the bus, and save the money to fix the car. Or, that a person who has a job and a car should already have a credit card. I live in the San Francisco metropolitan area, and public transportation is plentiful (in fact, the preferred method for most people for work commutes), but I have co-workers in South Dakota. The location of our company’s office there is nowhere near public transportation, and EVERYONE has to drive to work (often across state lines, because jobs are not plentiful in the area). I say this to make the point that there are many people who live/work in areas where public transportation isn’t an option, and there aren’t enough jobs in the area to pick a job based upon the commute convenience. Additionally, not every working person is privileged to have available credit for life’s urgencies. A working person could be in a situation where the family income has been slashed by a spouse/partner’s lay-off or disability, and doesn’t have family or friends that can make a sizable loan.
Some of the comments that people make seem to come from there own personal experience, and that experience appears to be limited to very little exposure to diverse groups of people.
“The rich rules over the poor,
And the borrower is servant to the lender.”
-Proverbs 22:7 (NKJV)
No – nothing new – but it reminds me that history repeats itself if we learn nothing.
p.s. The movie is free. Forward the link to everyone you know who might benefit from a little eye-opening!
Some good questions. I think the movie could still be useful in that people need to realize the credit is not nearly as handy as they seem to think. That the companies are in the business of making money and making lots and lots of money.
Maybe as they get that, they can start to question why they then use credit.
Here is a link to the PBS Frontline video. There are 5 separate segments. Worthy watching.
http://www.pbs.org/wgbh/pages/frontline/shows/credit/view/
Jonathan,
You should check a more statistical data oriented video of one of the people featured in the Maxed Out movie – Prof. Elizabeth Warren.
See it at http://video.google.com/videoplay?docid=1520197000986018021
It is about 60 min. interview on her book – “The Two Income Trap: Why Middle-Class Mothers and Fathers are Going Broke” which is discussing the same issues as in Maxed out but goes into the factual data you need to create a more educated opinion.
(at least in my opinion that is 🙂
It does answer the questions you have and shows that people who are going broke are the middle class, not your Joe Shmo who spends their paycheck(s) on “toys”.
One side thing striking to me which was said at the last 3 minutes of the movie is about Sen. Hillary Clinton, which originally is against the bankruptcy bill (which Bill Clinton eventually vetoes, although he was originally not opposed to it seems like…), but Hillary Clinton as Senator does nothing (much?) to stop the SAME bill when it goes through the Senate.
It is a very good video to listen to in the background while you work or smth. Very revealing…
And yes – Maxed out plays the emotional side more than it probably should and some people are put off by it and think it’s all just a play.
If you have Netflix, you can watch a high quality version on their Watch Now service.
It’s funny, this has been out for a while, but I just watched it this morning too. I had a similar reaction to you.
Boo-hoo! It’s someone else’s fault!!!
No crying about CC debt until you’ve sold everything you’ve bought with yours. Get rid of the television, the cell phone, and the jewelry today.
Oh, and hawk the couch and sleep on the floor. You don’t need a couch to live. Too much of a hardship? How badly do you want to get out of debt? Enough to quit smoking? Enought to quit drinking? Enough to give up that daily cup of Starbuck’s coffee?
How much is your freedom worth? Why should I care more than you do?
Since the U. S. economy is based on credit debt is inevitable.
the first half is very basic. but the second half is insightful. your review disappoints me. i earned $2k arbitrage income last year, from $80k @ 0%. now i’m wondering what to do with $175k in credit. we’re not the audience for this film. we’re not the modern peasantry. you and i both meet people all the time who need to see this film to you raise their consciousness. the psychology of a teenager stands little chance against the advanced psychological techniques of lenders. it’s servitude for sale and they’ll do anything to hide that fact. i get “contract revision agreements” all the time. these are intentionally written to be inpenetrable. i’m a technical writer and i don’t bother. but i have enough other banks that i know i can take revenge on any bank that tries to get sly. most people don’t understand any of this. most people should watch this film.
What insights does it offer?
What I got from this film is just that “Credit cards are evil.” My question is simply – will watching this film help reduce indebtedness? I’m not so sure, because it doesn’t offer much beyond that basic idea.
I have a hard time believing that people think payday loans, pawn shops, or credit cards are good things. I think they know they are bad, but they still want or need to spend anyways. And that’s the real problem.
I can agree that this film will probably help educate some, but I just can’t give it a glowing review. It could be done so much better.
Fun little video, the historical clips were a hoot. All in all, too one sided like you said. I guess extremes get noticed in the documentary world though.
Let’s face it, most of the people in debt they interviewed obviously weren’t that bright and didn’t take responsibility for their OWN actions…
I just wrote an update about why I hate cash, and while I agree with the fundamentals of your review in regards to cash – that is, for some people it is better – I think it’s a choice that everybody needs to think over for themselves and determine what is right. I know that the companies i have my cards through are just in business to make money. Why else would they be around? But by being well educated about what I was agreeing to when I signed up for my cards, I’ve been able to avoid all extra charges (and by paying it in full each month, I don’t even pay interest) and so credit cards are a great choice for me. I spend cash far too much, which is kind of opposite of ‘the norm’
I’ll have to watch the video later this weekend, when I have some more time. Thanks for the heads up 🙂
The logical conclusion from watching this movie (and reading personal finance sites) — exit strategy from this country as governments and citizens continually rack up more debt. Start learning a foreign language now — Chinese or Hindi would be good bets.
I would like to know if the people who posted comments seemingly in favor of “personal responsibility” vs. legislation (Eric, Russ, Albrecht, Matt) are also in favor of legalizing gambling. And if so, what you consider the differences between allowing people to dig themselves into financial holes at the hands of Visa vs. blackjack. Personally I’m in favor of regulating both Visa and blackjack, but I’d like to hear the other side.
“Each citizen’s share of the national debt is now over $30,000 each.”
actually, the figure is more like $175,000 per person, including the unborn.
If (when?) a Democrat gets into office, or another warmongering neocon, expect this figure to climb dramatically in the next 4 years. The war is costing us $1.4 billion a day, and socialized medicine will be going on credit too.
Ron Paul was our hope to get us out of this financial mess, but the Sheeple had to go and screw it up. I guess I shouldn’t have expected much from this nation of American Idol watching couch potato bank slaves.
Heather,
Yes to legalized gambling for adults. No for children/teens and strict regulations in place to ensure it.
In fact, I made a nice side living for awhile as an amateur online poker player. Do some people get hooked and gamble their savings away? Sure, a small percentage do. Just like a certain percentage of people, my father included, develop an addiction to alcohol.
My father recovered and has been sober for nearly 40 years. In that time, he’s not once asserted that his problem was that alcohol was legal.
For the general public, this movie is of definite benefit because the majority of Americans are ignorant about credit cards. That being said, I would expect that any reader of this site should know the majority of things they cover.
tidbit:OK, so about 30 seconds in, the housing lady talks about “Seven Hills” being some place in Italy… sigh… go to your search bar and type in “Seven Hills”, it’s the historic “birthplace” of the city of Rome. (there for the five of you that didn’t already know)
mimi: Payday loans… could turn people into virtual slaves.
It’s nice to think this way, but really, we don’t need loan companies to do this. Most people turn themselves into slaves just fine. Payday loans are just the long tail, the darkest, deepest breaths before the end.
Karla: Do you know how much bus fare is these days? (in response to Mimi’s bus taking point)
Truth is, if you can’t afford to fix your car and you can’t afford public transportation, then it’s time to find a carpool. Fundamentally though, if you cannot afford to fix your car, you cannot afford your car. Cars don’t occasionally need repair, they eventually need repair. If you can’t afford new tires or the deductible on your insurance, then you simply can’t afford your car.
If you need a car to get to work and you can’t afford it, then you need a new job or a pay raise or a different lifestyle. Billions of people the world over live on public transportation without the need for a car. Requiring a car to make a living is a very pervasive form of American lifestyle creep. Owning a car is the single most expensive way to mitigate your transportation expense.
bdgc: Had I bought a place in San Diego in 97 I’d have a nearly paid for home with 600-700k in equity.
Yeah, but what good is 600k in equity if you have to move to some other expensive place to “cash out”? Don’t get me wrong, it has some nice leveraging capabilities, but I know tons of people who spend more money each month on overhead (tax-adjusted interest / property taxes / maintenance / etc) than I spend on rent. Then they end up living a 30 minute commutes to work and 15 minute drives to the grocery store as if their time wasn’t worth anything.
And let’s not forget that the last 15 years have been ridiculously good for real estate. 10 more years of inflation and dropping prices could have you happy to be renting instead of owning and old high-maintenance house. And for some people, home “ownership” is the primary cause of the above-mentioned slavery. Owning your home is not a requirement for achieving wealth or happiness. Please be careful about the advice that you deliver to your kids.
Debra: The location of our company’s office there is nowhere near public transportation.. (and long rant about “less fortunate”…)
Yes I understand that it sucks, but you’re not giving any examples here that can’t be mitigated by living within your means and practicing basic disaster planning. If you can’t afford your car b/c you’re not making enough money, then you have to ask for a raise or leave. If there are no other jobs, then you’ll have to burn your emergency fund and move so that you can remain cash-flow positive.
If a long-term disability can destroy your finances, then you should be insuring against it. If you can’t afford the insurance, then you’ll have to cut somewhere else…
Yes, these are not “happy” decisions. People don’t like to make these decisions, it hurts their pride, it introduces large amounts of uncomfortable changes, it’s downright depressing for some people. But pride and comfort take a back seat to shelter and food.
Phillip: … because the majority of Americans are ignorant about credit cards….
Replace the highlighted part with “finances in general”. Though truth be told, I think that’s it a combination of “ignorance” and “selective reality filtering”, but that’s another discussion.
Well what I got out of the movie was that we no longer live in a country that values our rights as an individual on any level. The corporation has rights, you don’t–and by “corporation” I don’t mean it’s employees, because most of them have to sign away their rights too.
Eye-opener
My god, we extended almost all of our reservists’ tours, without any means for compensating them for the financial consequences that would result.
Instead of patting myself on the back for being financially responsible, I started thinking about all of those assumptions I had about my life–my entitlements, the value of the dollar–and how it can all be turned upside down in an instant because of some legislation that allows a predatory industry to run amok.
What if I have a stroke and my company is no longer able to subsidize my healthcare, or I am stuck with an EPO or HMO and they just flat out refuse to pay because of some loophole? I’d have to start over, in the negative. I would overnight become one of these people in the movie. Whether it’s debt from an ab-flex machine, or debt just to keep the lights on and food on the table, all roads lead to the same consequence. All these dollars I have saved up could easily disappear at the swipe of a legislative pen.
I agree with your view of the movie. I hate people who whine about predatory lending. Predatory? If you’re dumb enough not to figure out what your signing then your too dumb to own a card anyways. You should ALWAYS know your terms. And no, this isn’t coming from someone who’s debt free. I’m over $100,000 in various business and school debts including credit cards, but I would never call my lenders predatory. Pay your damn bills on time already.
FRONTLINE: Secret History of the Credit Card DVD… watch that.
thank you for mentioning Wells Fargo, they and “kino cabana” contribute the most for my divorce. Yet system has flows that are good for us, use and abuse them, timing and good accounting is the key.
movie was made 2004… 😉
2 Karla…, you do remember what did happen to the person who said “let them eat cake…”
The difference between a predatory lender and someone who sells an ipod is: the ipod guy is telling me that if I buy his product I’ll get a pocket sized device that plays music, and the lender is telling me that if I buy his product I’ll be able to pay my bills. One of them is lying. One of them knows that I’m not buying what I think I’m buying.
You are right everyone is just here to make money and no it isnt personal. But I feel the need to quote one of Ghandi’s seven social sins “Commerce without conscience”. I think that is far more the point of the film.
GateVP… ain’t it cold in that ivory tower?
Hey @Victoria, I know I can sound a little uncaring. But it’s not just a “me thing”, I live by these beliefs and share them with a cross-section of my friends.
I make 75k / year (in Kansas City) and walk to work. I don’t own a car and rented a place specifically close to my place of employment. I’m 28 and I’ve never owned a car, so I’ve used public transportation for basically every job I’ve ever had. For well over 5 years, I’ve done grocery runs on foot (but I’ve also picked places to rent that specifically make this possible).
I have friends in various places with similar setups. One friend is a new teacher in Canada (making 40k) who buses to work every day and rents an apartment down the street from the grocery store. Another friend makes 50k in the computer field and he buses and lives with his mother. I have a friend making under 30k / year who’s lived in the same rental apartment for 8 years. She had to save her tips from waiting tables just to be able to pay for a wisdom tooth extraction. (and there are more on list of Facebook friends)
I turned down a work contract that would have been mine b/c it involved extensive driving and the driving allowance wasn’t big enough. I even called dealerships asking for rates on a car lease, but couldn’t find anything cheap enough. I borrowed my mother’s vehicle for a few months and had to give it back b/c the maintenance costs were too high (I wasn’t even paying the insurance).
So my comments aren’t some form of intellectual superiority complex. They’re not caring and compassionate, but they’re about managing and understanding one’s financial risk (which is kind of a cold topic).
@Victoria, if you have issues with something specific I’ve said, please let me know, I have no problem with being wrong. It’s happened to me a lot 🙂
The folly of Borrowing is the calculation of the APR, the NOMINAL method of multiplying the rate for a payment period by the number of payment periods (including fractions) in a year. On an extreem loan, a payday loan, where typically a 14-day post-dated check for $115 is given to borrow $100, that Nominal APR is stated as 391.071% (15%*365/14). The mathematically-true, EFFECTIVE APR is calculated by compounding the payment period rate for the number of periods in a year. In this case it is 3723.661% (((1+.15)^(365/14))-1). The Truth in Lending Act of 1968 dictates the Nominal method probably because it was recommended by then Under Secretary , Joe Barr, because calculating machines with a compounding function were not ubquitous. That law allows a 1/8th% (0.125%) tolerance of accuracy in the Nominal calculation. The mathematically-true, Effective ARP is a shocking 26,660 of those 1/8th% from the Nominal APR (3723.661%-391.071)/0.125%. The Truth in Savings Act uses the Effective APR and obfuscate the exactitude to the Effective APR by naming it the Annual Percentage Yield. The TILA should use the Effective APR, also.