History
The earliest official use of the Rule of 78s to calculate the unearned portion of a loan’s finance charge was in Indiana in 1935. Most loans in 1935 were for small amounts at low interest rates for short periods of time. It reduced the cost of loan calculations in a pre-computer era and was well suited for the small, short, and low interest rate loans of the era.
In the United States, the use of the Rule of 78s is prohibited in connection with mortgage refinancings and other consumer loans having a term exceeding 61 months.
On March 15, 2001, in the U.S. 107th Congress, U.S. Rep. John LaFalce (D-NY 29), introduced H.R. 1054, a bill to eliminate the use of the Rule of 78s in credit transactions. The bill was referred to the House Committee on Financial Services on the same day. On April 10, 2001, the bill was referred to the Subcommittee on Financial Institutions and Consumer Credit, where it died with no further action taken.
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