Regulatory Alerts2008-08-29
OFI Advisory Opinion No. 6 – Rule of 78’s Rebates
The Office of Financial Institutions clarifies that Louisiana lenders may use the Rule of 78’s method to calculate unearned finance charge rebates when borrowers prepay precomputed consumer loans before maturity. This calculation applies a sum-of-digits ratio to the total capitalized finance charge, treating each month as a full interest period regardless of the exact prepayment day. Creditors retain charges for all expired months plus the entire prepayment month, while borrowers receive a proportional refund determined by a standardized formula or shortcut calculation.
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