Troubleshooters: 164% APR loan legal in Kentucky

LOUISVILLE, Ky. (WAVE) - Mafia loan sharks charged at least 200 percent interest in the late sixties, far above the legal limits set in state law. Yet a Louisville tire customer didn’t learn she was going to pay a triple digit APR until the bill came in the mail.

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

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

She lives on a tight budget. Social Security needs to cover her mortgage, utilities, and chemotherapy treatments. So she wanted to take advantage of Big O’ Tires six month same as cash policy for four new tires.

“They ran me through Big O’, and I couldn’t get that,” said Pollock.

Her credit score was too low, so the manager suggested an alternative. Pollock could have Big O’ Tires apply for a loan from Easy Pay Finance on her behalf.

“The next thing I know is I get this thing in the mail, $106 a month, for 12 months,” said Pollock.

What Pollock thought was an affordable payment plan charged an annual percentage rate of 164 percent. That nearly doubled her tire bill from $650 dollars, to $1,280.

“A 90 day same as cash, and then you hit day 91 and all of the sudden you did not understand what you were getting into,” said Laura Day DelCotto, a bankruptcy lawyer.

DelCotto said consumers can get in trouble quickly if they don’t understand the fine print.

“Don’t get pressured into signing something you didn’t read, because it’s almost impossible for a court to get anybody out of a contract if they’ve signed it,” said DelCotto.

But Pollock said she was never told the APR, never saw the actual loan paperwork until it came in the mail, and doesn’t remember electronically signing the contract. The Big O’ Tire manager told WAVE they would have told Pollock to pay the bill in 90 days because Easy Pay Finance charges high interest after that. The manager said she didn’t know the rate was 164 percent.

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

Kentucky law caps interest at 36 percent, but the National Consumer Law Center said state laws have loopholes. In Kentucky, the retail installment contract law doesn’t limit interest charges. The 36 percent interest cap also doesn’t apply when a business sells an installment loan to a finance company like in Pollock’s case. Saunders said loopholes hurt consumers.

“These companies have a found a business model offering this kind of predatory credit, through stores, the stores they get the sale so there’s something in it for them,” said Saunders.

Saunders said states need to close loopholes, and the NCLC also wants a national 36 percent rate cap.

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

WAVE reached out to Easy Pay Finance to ask about its interest charges but didn’t hear anything back. WAVE also asked Kentucky’s Department of Financial Institutions if Pollock’s contract is legal. The head of the branch that regulates these types of lenders couldn’t tell us. He said in the past, the department has found some retail installment contracts legal, and some not.

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

Pollock isn’t waiting to find out. After making two payments, she decided to borrow money from her family to pay off the rest of the loan early. She’d have never taken it in the first place had she been told the interest rate.

“There’s no way, like I said, I may look it, but I’m not stupid,” said Pollock.

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

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