[DRAFT] Default Payment Allocation

[Imperium Anglorum]

Regulation: Consumer Protection

The World Assembly,

Believing that it would be best to prohibit the specific practice of allocating payments to the balances with the lowest interest rates first, leaving higher interest rate balances to accrue, imposing costs on unsophisticated borrowers,

Considering that such action would help improve consumer rights and that further action is herein taken to expand legal recourse against violators of those rights, hereby enacts as follows:

1. If a credit account has balances with different annual percentage rates (APR), every payment to that account in excess of the minimum payment needed to avoid penalties must be applied to the balances with the highest APRs first, unless the payer directs otherwise in writing for that instance.
   
   
2. Section 1 requirements may not be waived by contract. Payees non-compliant with section 1 shall be liable for costs and no less than three times actual damages.
   
   
3. Each lender must apply the same method for calculating interest to all of its credit accounts.

[Imperium Anglorum]

Other relevant proposal. viewtopic.php?p=39965147#p39965147

[Untecna]

OOC: Well, I don't have any specialties in this sort of area, so I suppose...

IC: "The Untecnan Delegation wishes to express its support for this proposal."

[Xernon]

"Companies should not be able to take advantage of or manipulate their patrons' payments to generate further profit. The Xernonian Delegation wishes to express its full support for this proposal."

[Desmosthenes and Burke]

OOC:
Various Suggestions:

Clause 1: change "an" to "a"

Clause 2: Replace "treble damages" with "three times the actual damages" or something similar

Speaking of damages, perhaps instead of or in addition to the triple actual damages, perhaps some mandatory punitive sanctions or a minimum level of statutory damages and/or a provision on costs perhaps. I suggest this based on the real possibility that even tripled, the damages suffered by any individual plaintiff are still likely to be relatively small, especially compared to the costs of litigation or arbitration, and especially so in jurisdictions that do not permit collective litigation.

[Hulldom]

OOC:
Various Suggestions:

Clause 1: change "an" to "a"

Clause 2: Replace "treble damages" with "three times the actual damages" or something similar

Speaking of damages, perhaps instead of or in addition to the triple actual damages, perhaps some mandatory punitive sanctions or a minimum level of statutory damages and/or a provision on costs perhaps. I suggest this based on the real possibility that even tripled, the damages suffered by any individual plaintiff are still likely to be relatively small, especially compared to the costs of litigation or arbitration, and especially so in jurisdictions that do not permit collective litigation.

Would specifying a minimum level of statutory damages actually be allowed? [I know next to nothing about the topic, I mean this purely in a rules sense.]

[Desmosthenes and Burke]

OOC:
Various Suggestions:

Clause 1: change "an" to "a"

Clause 2: Replace "treble damages" with "three times the actual damages" or something similar

Speaking of damages, perhaps instead of or in addition to the triple actual damages, perhaps some mandatory punitive sanctions or a minimum level of statutory damages and/or a provision on costs perhaps. I suggest this based on the real possibility that even tripled, the damages suffered by any individual plaintiff are still likely to be relatively small, especially compared to the costs of litigation or arbitration, and especially so in jurisdictions that do not permit collective litigation.

Would specifying a minimum level of statutory damages actually be allowed? [I know next to nothing about the topic, I mean this purely in a rules sense.]

There are a myriad of ways to phrase such a thing, all of which I have confidence IA is skilled enough to use. Technically, as far as I recall, there is no specific rule against using a specific figure (usually expressed in NSD) either, but more of a convention that doing so is bad, but there is an entire world of other ways of defining an amount (percentages of something else, set multiples of some benchmark [which you may not is what treble damages are], 'an amount calculated to induce compliance' , etc...). Of course, there are also alternatives as hinted, like punitive damages and mandatory cost recovery that could be tacked on as well. My main thrust was to pull more out of the toolbox to make sure it is financially workable for individual consumers to press claims so as to avoid the situation where the company finds it more profitable to continuously violate the resolution and payoff the rare case when someone has money to waste or enough debt for damages to outweigh the costs of the claim.

[Imperium Anglorum]

Would specifying a minimum level of statutory damages actually be allowed? [I know next to nothing about the topic, I mean this purely in a rules sense.]

There are a myriad of ways to phrase such a thing, all of which I have confidence IA is skilled enough to use. Technically, as far as I recall, there is no specific rule against using a specific figure (usually expressed in NSD) either, but more of a convention that doing so is bad, but there is an entire world of other ways of defining an amount (percentages of something else, set multiples of some benchmark [which you may not is what treble damages are], 'an amount calculated to induce compliance' , etc...). Of course, there are also alternatives as hinted, like punitive damages and mandatory cost recovery that could be tacked on as well. My main thrust was to pull more out of the toolbox to make sure it is financially workable for individual consumers to press claims so as to avoid the situation where the company finds it more profitable to continuously violate the resolution and payoff the rare case when someone has money to waste or enough debt for damages to outweigh the costs of the claim.

That's a good point. I've affected both of the recommendations from earlier.

That said, perhaps this is the perspective of a regulator especially, but I'm unconvinced that almost any level of civil enforcement like this would be sufficient. It would have to be government action that would most efficiently coerce compliance, either by sending someone into the creditor directly to make it happen, sending non-compliant business officers to prison, or hanging the sword of Damocles dissolution.

The main reason why I have the damages clause is to fit into the category, which requires something something like damages, tort reform (in the open way), etc.

[Nationalist Northumbria]

We are opposed on principle to anything which would interfere with companies.

[Separatist Peoples]

There are a myriad of ways to phrase such a thing, all of which I have confidence IA is skilled enough to use. Technically, as far as I recall, there is no specific rule against using a specific figure (usually expressed in NSD) either, but more of a convention that doing so is bad, but there is an entire world of other ways of defining an amount (percentages of something else, set multiples of some benchmark [which you may not is what treble damages are], 'an amount calculated to induce compliance' , etc...). Of course, there are also alternatives as hinted, like punitive damages and mandatory cost recovery that could be tacked on as well. My main thrust was to pull more out of the toolbox to make sure it is financially workable for individual consumers to press claims so as to avoid the situation where the company finds it more profitable to continuously violate the resolution and payoff the rare case when someone has money to waste or enough debt for damages to outweigh the costs of the claim.

That's a good point. I've affected both of the recommendations from earlier.

That said, perhaps this is the perspective of a regulator especially, but I'm unconvinced that almost any level of civil enforcement like this would be sufficient. It would have to be government action that would most efficiently coerce compliance, either by sending someone into the creditor directly to make it happen, sending non-compliant business officers to prison, or hanging the sword of Damocles dissolution.

The main reason why I have the damages clause is to fit into the category, which requires something something like damages, tort reform (in the open way), etc.

Ooc: on the real world, we split the baby with administrative proceedings that involve lessened burdens compared to civil cases and the same cost shifting provisions. Alas, I am just not convinced the WA could make a useful analog.

[Bears Armed]

Technically, as far as I recall, there is no specific rule against using a specific figure (usually expressed in NSD) either,

OOC: Using NSD in proposals has always been counted as illegal under the "forced roleplay" aspect of the Metagaming rule, because it would require every player with a member nation to accept the existence of that currency -- which was only invented somewhere in the [other] RP sections of these forums -- as canonical.
You would have to define the figure in terms of a currency actually defined in an earlier resolution, but no such currency has been introduced successfully so far... Several drafts have been started, at different dates, but the problems implicit in defining the new currency's value and determining how much of it should exist have led to the idea being dropped in all of those cases.

[Imperium Anglorum]

I've made a change to apply the payments only to those which reduce balances rather than those which meet minimum payments. I'm also considering adding a clause to require minimum payments to exceed interest charges on revolving credit accounts offered to the general public. That said, such a clause may be better suited for a separate resolution.

[Imperium Anglorum]

Bump.

[Tinhampton]

Suppose that Dave has a current account with two balance APRs, 10% and 20%. Of course, if Dave has the same amount of credit/debt/whatever in both the 10% and 20% sections, he will ultimately have to pay more on the 20% section over time. If I've understood this draft right, will Dave have to pay off his credit from the 20% section first (subject to Article 1), thus reducing the amount that compounds on that section as against the 10% section? And how will Dave benefit compraed to if he had to pay off his 10% section first (other than "costs are being imposed upon Dave")? Forgive me; my brain hurts already

[Imperium Anglorum]

Suppose that Dave has a current account with two balance APRs, 10% and 20%. Of course, if Dave has the same amount of credit/debt/whatever in both the 10% and 20% sections, he will ultimately have to pay more on the 20% section over time. If I've understood this draft right, will Dave have to pay off his credit from the 20% section first (subject to Article 1), thus reducing the amount that compounds on that section as against the 10% section? And how will Dave benefit compraed to if he had to pay off his 10% section first (other than "costs are being imposed upon Dave")? Forgive me; my brain hurts already

C Marcius Blythe.

First, Dave can pay off the 10pc section first, if he chooses to do so for that instance in writing. Why he would want to do so, I have no clue. Second:

Assume you have the criteria met in this question with 10 and 20 per cent rates per annum. The principal in each bucket is 100.
In the next period, you would owe 110 and 120. You pay 100 flat. This is allocated to the lowest bucket first.
You now owe 10 and 120. In the following period you would owe 11 and 144 (total 155).

In the other world, with this resolution, where allocating that 100 to the highest bucket first would mean...
You would now owe 110 and 20. In the following period you would then owe 121 and 24 (total 145).

The difference compounds as time continues. (Correct me if my arithmetic is demonstrably erroneous.) In the period after that, given the same payment, in world 1 after making a payment of 100 you would owe 0 and 55, yielding a next period of 66 owed. On the other hand, in world 2, you would owe 45 and 0, yielding a next period of 49.5 owed. When both loans are paid down, in the first, you would have paid 266 and in the second 249.5. The differences, of course, expand over the extent of the loan (which would in this case be most manipulated by the size of the repayment).

OOC.

In the status quo, it is not always the case that people can choose to pay down higher interest rate buckets first. For example, Bank of America's Customised Cash Rewards credit card requires you to pay off the normal credit card balance before cash advance balances, where the rate for normal credit card is lower than the cash advance balance interest rate. Because you can evade this requirement by contract in the status quo and because issuers would do that so to trick people (seriously who actually reads these contracts in their entirety) into paying more money, that is why a new default payment allocation needs to be enacted.

[Tinhampton]

Seems legit. Full support.

[Simone Republic]

Shouldn't payments be first made to cover any overdue taxes, out of pocket expenses, legal fees, recovery costs etc. first?

[Attempted Socialism]

Just to check: Would 'credit account' also cover if you have e.g. mortgage at the same banking institution that your other accounts are at? Would a long-term loan secured against an asset (Home, in this case) behave the same way and is that desirable?

[Imperium Anglorum]

Just to check: Would 'credit account' also cover if you have e.g. mortgage at the same banking institution that your other accounts are at? Would a long-term loan secured against an asset (Home, in this case) behave the same way and is that desirable?

Those would probably be separate credit accounts. Each credit account would have a separate minimum payment, failure to pay it would put the account into arrears.

Shouldn't payments be first made to cover any overdue taxes, out of pocket expenses, legal fees, recovery costs etc. first?

This isn't an allocation of all money that someone has. This relates only to how balances with different APRs within a credit account would be allocated.

[Mundaneland]

Mundaneland endorses this resolution for the benefit of the People and their greater protection against the corporate elite.

[Daarwyrth]

Zylkoven: "The Daarwyrthian delegation will support this proposal once it reaches to voting floor."

[Heavens Reach]

Support

[Attempted Socialism]

Just to check: Would 'credit account' also cover if you have e.g. mortgage at the same banking institution that your other accounts are at? Would a long-term loan secured against an asset (Home, in this case) behave the same way and is that desirable?

Those would probably be separate credit accounts. Each credit account would have a separate minimum payment, failure to pay it would put the account into arrears.

Thanks for the clarification.

[Imperium Anglorum]

Bump.

[Simone Republic]

Shouldn't payments be first made to cover any overdue taxes, out of pocket expenses, legal fees, recovery costs etc. first?

This isn't an allocation of all money that someone has. This relates only to how balances with different APRs within a credit account would be allocated.

As you'd know, bank fees are usually ahead of loans in terms of payment due to indemnity clauses, and if a borrower is making a payment that only covers fees or charges but makes no dent on the interest (or the principal, for that matter), which has priority?

Otherwise I don't have any comments as I agree with the principle that higher APR balances should be settled first, automatically. The bigger IRL problem is of course borrowers with loans from multiple institutions, rather than the same institution as in your case.

OOC.

In the status quo, it is not always the case that people can choose to pay down higher interest rate buckets first. For example, Bank of America's Customised Cash Rewards credit card requires you to pay off the normal credit card balance before cash advance balances, where the rate for normal credit card is lower than the cash advance balance interest rate. Because you can evade this requirement by contract in the status quo and because issuers would do that so to trick people (seriously who actually reads these contracts in their entirety) into paying more money, that is why a new default payment allocation needs to be enacted.

OOC

If anyone is carrying a credit card balance other than due to a dire emergency, they really need help.