by HonestAbe » Fri Jan 10, 2014 10:31:34 PM
Yes, it's too bad about her. It wasn't so much RBC as her lawyers egging RBC on so that they could milk everything out of the case by adding on their outrageous legal fees. After all, she offered them very reasonable and full repayment terms. RBC would have gotten all of their money back under her proposal, but the lawyers would have missed out on the huge legal fees coming from Superior Court trial and then later on, the seizure of her home. Real vultures.
Remember that scene in Jurassic Park when the T-Rex found the pernicious lawyer sitting on the toilet seat - appropriate imagery by the way, because the lawyer was full of ****. The whole audience in the movie theater cheered as the T-Rex gobbled him up.
I wouldn't worry about what you might owe CIBC, as the chances they've filed a suit is about the same as Rob Ford getting a job at the Toronto Star.
Interest rates are usually quoted at what's called their nominal [annual] value. For example, 21% doesn't mean that you will pay $121 at the end of the year if your overdraft is $100 on Jan. 1. Because the balance on most accounts changes frequently, computing and compounding interest on a daily basis is more accurate and allows greater flexibility.
Expressing 21% as a daily interest rate is 21%/365 days = .0575342466% per day or .000575342466 because to convert from % to a decimal fraction you must divide by 100. (Sorry for all the decimals but you really need them for accuracy when you're compounding something 365 times.)
For a $1 balance, at the end of the first day you would owe $1.000575342466.
At the end of the 2nd day you would owe ($1.000575342466) x ($1.000575342466) = $1.001151016
Doing this 365 times (on a financial calculator) at the end of 1 year, you would owe $1.233603565 or $1.233, rounded.
So the 21% nominal annual rate that CIBC quotes is effectively 23.3% when the compounding is done daily.
To use your example: A balance of $410 in your overdraft account for a full month would result in a balance of $417.14 at the end of the month, implying the interest would amount to $7.14, not $3.14. You must have been in overdraft less than 2 weeks out of the 30 days assuming the amount didn't change during that month. In any event, a $500 overdraft will cost you $116.80 in interest for a full year. No wonder the banks love them.
Another point: When legal action is filed on a account, the interest from that day on CHANGES to simple from compounding.
Using the same example: If CIBC filed an action on Feb.1 2005, and the outstanding balance on that date with compound interest was $1500, then if they got a judgment and you paid 5 years later on Feb. 1, 2010, the amount of prejudgment and post judgment interest would be 5 years x 21% x $1500 = $1575 for a total amount owing of $3075. Note that the court interest rate is the prevailing rate of the credit agreement at the time it was written off, NOT the statutory 3% default rate.