Some ethical issues in computation and disclosure of interest rate and cost of credit

Journal of Business Ethics 16 (5):531-535 (1997)
Although the mathematics of interest is very precise, the practice of charging computing and disclosing interest or cost of credit is full of variations and therefore often questionable on ethical grounds. The purpose of this paper is to examine some of the prevalent practices which are incorrect, illogical, unfair or deceptive. Both utilitarian and formalist schools of ethical theory would find these practices to be inappropriate. The paper will specifically look at unfair practices in the areas of estimation of intrayear rates, use of 360 days in a year, the "rule of 78th", interest rate ('APR') advertising, and computation of unpaid balance by credit card issuers to figure interest costs.The current practices are not in the best interest of the average consumer. There is, therefore, an urgent need for new legislation, change in regulatory code and disclosure requirement for eliminating these unethical practices. The author recommends that the Truth in Lending Code of the Federal Reserve should require the disclosure of the effective APR if the periodic rate is determined by dividing the 'APR' by the number of payment period in a year; the use of 360 days in a year methods and the "Rule of 78ths" should be immediately discontinued; Deceptive advertising, which tend to understate the true cost of credit or hides hidden costs and fees should be outlawed; interest should be payable with the same frequency as the frequency of compounding and credit card holders should be provided with a comparative example of various methods of balance computation.
Keywords Philosophy   Ethics   Business Education   Economic Growth   Management
Categories (categorize this paper)
DOI 10.1023/A:1017993704216
 Save to my reading list
Follow the author(s)
My bibliography
Export citation
Find it on Scholar
Edit this record
Mark as duplicate
Revision history Request removal from index
Download options
PhilPapers Archive

Upload a copy of this paper     Check publisher's policy on self-archival     Papers currently archived: 24,463
External links
Setup an account with your affiliations in order to access resources via your University's proxy server
Configure custom proxy (use this if your affiliation does not provide a proxy)
Through your library
References found in this work BETA

No references found.

Add more references

Citations of this work BETA

No citations found.

Add more citations

Similar books and articles

Monthly downloads

Added to index


Total downloads

17 ( #268,208 of 1,925,507 )

Recent downloads (6 months)

1 ( #418,235 of 1,925,507 )

How can I increase my downloads?

My notes
Sign in to use this feature

Start a new thread
There  are no threads in this forum
Nothing in this forum yet.