CARPENTERS Finance Fiji Limited does not support the move to scrap a legislated formula that calculates interest on items sold through credit purchase.
In its submission to the council on matters concerning the hire-purchase industry, CFFL said the Rule of 78 which was contained in the Consumer Credit Act 1999 was a logical and fair means of determining interest income.
The name Rule of 78 comes from the total number of months' interest that is being calculated in a year (the first month is one month's interest, whereas the second month contains two months' interest, etc.).
This is an accurate interest model only based on the assumption that the borrower pays only the amount due each month.
"If the borrower pays off the loan early, this method maximises the amount paid by applying funds to interest before principal.
"It considers the condition of the goods," CFFL said of the rule.
The company said it was able to generate positive return on funds utilised through increasing its collection staff ratio to total staff.
"The default rate ranges from 45 per cent to 50 per cent while the ratio of collection staff to total staff is above 53 per cent," CCFL said.
Interest rates reflected the risks particularly where it concerned high bad debts, the high collection costs, the high default rates and the target market, to name a few, the company said.
The company said it was not the nature of hire-purchase finance to allow customers to seek their own insurance because the title had not been wholly passed to the hirer.
"On average, approximately $250,000 of claims has been settled by insurers in the past five years which has reduced customers' outstanding balance.
"In some instances, refunds have been passed to consumers."