164% APR legal loan in Kentucky
LOUISVILLE, Ky. (WAVE) — Mafia loan sharks were charging at least 200% interest in the late 1960s, well above legal limits set by state law. Yet a Louisville tire customer didn’t learn she was going to pay a triple-digit APR until the invoice was mailed.
Kentucky state law caps interest on certain loans at 36% per annum. But the triple-digit APR this client ended up with would have doubled her bill from $650 to $1,280.
“I went to Big O’ Tires and bought four new tires and my bill came to about $600 something,” said customer Debbie Pollock.
She lives on a tight budget. Social Security has to cover his mortgage, utilities, and chemotherapy treatments. So she wanted to take advantage of the same six-month policy as Big O’ Tires for four new tires.
“They passed me through Big O’, and I couldn’t figure it out,” Pollock said.
His credit score was too low, so the manager suggested an alternative. Pollock could ask Big O’ Tires to apply for a loan from Easy Pay Finance on his behalf.
“Next thing I know I’m getting this thing in the mail, $106 a month, for 12 months,” Pollock said.
What Pollock thought was an affordable payment plan charged an annual percentage rate of 164%. This nearly doubled his tire bill from $650 to $1,280.
“At 90 days like cash, then you hit day 91 and all of a sudden you don’t understand what you’re getting into,” said bankruptcy attorney Laura Day DelCotto.
DelCotto said consumers can get into trouble quickly if they don’t understand the fine print.
“Don’t be forced to sign something you haven’t read because it’s next to impossible for a court to get someone out of a contract if they signed it,” DelCotto said.
But Pollock said she was never told about the APR, never saw the actual loan documents until they were mailed out and does not recall signing the contract by electronic way. The Big O’ Tire manager told WAVE they would have told Pollock to pay the bill within 90 days because Easy Pay Finance charges high interest afterwards. The manager said she didn’t know the rate was 164%.
“In some states, depending on the type of loan, a 100%, 200% loan is legal, believe it or not, it really shouldn’t be,” said Lauren Saunders, associate director of the National Consumer Law Center. .
Kentucky law caps interest at 36%, but the National Consumer Law Center said state laws have loopholes. In Kentucky, the retail installment contract law does not limit interest charges. The 36% interest cap also does not apply when a company sells an installment loan to a finance company, as in Pollock’s case. Saunders said the loopholes hurt consumers.
“These companies have found a business model offering this kind of predatory credit, through the stores, the stores they get the sale, so there’s something for them,” Saunders said.
Saunders said states need to close loopholes and the NCLC also wants a national rate cap of 36%.
“We really need national limits on interest rates to protect consumers everywhere,” Saunders said.
WAVE contacted Easy Pay Finance to inquire about their interest charges, but heard nothing back. WAVE also asked the Kentucky Department of Financial Institutions if Pollock’s contract was legal. The head of the branch that regulates these types of lenders could not tell us. He said that in the past, the ministry had found some retail contracts to be legal, and others not.
“It’s not right, I don’t care if it’s me or anyone else, it’s not right,” Pollock said.
Pollock doesn’t wait to find out. After making two payments, she decided to borrow money from her family to prepay the rest of the loan. She would never have taken it in the first place if she had been told the interest rate.
“There’s no way, like I said, I might look, but I’m not stupid,” Pollock said.
Pollock filed complaints with the Kentucky Attorney General’s Office and the Department of Financial Institutions.
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