164% effective loan legal in Kentucky

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LOUISVILLE, Ky. (WAVE) — Mafia loan sharks in the late 1960s charged at least 200 percent interest, well above the legal maximum. But a Louisville tire customer wasn’t told they were paying a triple-digit APR until the bill came in the mail.

Kentucky state law caps interest on certain loans at 36 percent per year. But the triple-digit APR this customer received would have doubled her bill from $650 to $1,280.

“I went to Big O’Tires and got four new tires and my bill ended up being about $600,” said customer Debbie Pollock.

She lives on a tight budget. Social Security must cover her mortgage, utilities, and chemotherapy treatments. So she wanted to use Big O’ Tires for six months as well as monetary policy for four new tires.

“You took me through Big O’ and I couldn’t understand it,” Pollock said.

Their credit rating was too low, so the manager suggested an alternative. Pollock could get Big O’ Tires to apply for a loan on their behalf from Easy Pay Finance.

“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 APR of 164 percent. This almost doubled her tire bill from $650 to $1,280.

“A 90 day like cash, and then you hit day 91 and all of a sudden you didn’t understand what you were getting yourself into,” said Laura Day DelCotto, a bankruptcy attorney.

DelCotto said consumers could quickly find themselves in trouble if they don’t understand the fine print.

“Don’t let yourself be pressured into signing something you haven’t read because it’s almost impossible for a court to get someone out of a contract once they’ve signed it,” DelCotto said.

But Pollock said she was never told the APR, never saw the actual loan documents until they came in the mail, and doesn’t remember electronically signing the contract. Big O’ Tire’s manager told WAVE they asked Pollock to pay the bill within 90 days because Easy Pay Finance charged high interest afterwards. The manager said she didn’t know the rate was 164 percent.

“In some states, a loan is 100 percent, 200 percent legal depending on the type of loan, believe it or not, it really shouldn’t be,” said Lauren Saunders, associate director of the National Consumer Law Center.

Kentucky law caps interest rates at 36 percent, but the National Consumer Law Center said state laws have loopholes. In Kentucky, the consumer installment plan law does not limit interest charges. The 36 percent interest rate cap also does not apply if a company sells an installment loan to a finance company, as in the case of Pollock. Saunders said loopholes hurt consumers.

“These companies have found a business model that offers this kind of predatory credit through businesses, the businesses that they sell, so there’s something in there for them,” Saunders said.

Saunders said states must close loopholes and the NCLC also wants a national interest rate cap of 36 percent.

“We really need national interest rate limits to protect consumers no matter where they are,” Saunders said.

WAVE contacted Easy Pay Finance to inquire about interest charges but received no response. WAVE also asked the Kentucky Department of Financial Institutions whether Pollock’s contract was legal. The head of the industry that regulates these types of lenders couldn’t tell us that. He said the department has in the past found some retail installment contracts legal and others not.

“That’s not right, I don’t care if it’s me or someone else, that’s not right,” Pollock said.

Pollock isn’t waiting 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 if she had been told the interest rate.

“Like I said, there’s no way I can look like that, but I’m not stupid,” Pollock said.

Pollock has filed complaints with the Kentucky Attorney’s Office and the Department of Financial Institutions.

WAVE – NBC affiliate of Louisville and Southern Indiana. Follow us on Twitter & Instagram @wave3news.(WAVE)

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