|
 |
Home >> Lending >> Personal
Is a 98% APR Legal
I've recently seen many television ads by an organization name "Cash Call" offering unsecured cash loans. When I went to their website (Cashcall.com) I noticed that their loans can run as high as 98% APR. How are they getting around the laws against usury?
|
|
 We don't believe they are getting around usury laws, but rather are exporting the rates they are allowed to charge, based on where the loan is being made from. This is a common scenario. While some lenders may try to get around usury laws, banks do not typically do this. They are highly regulated and are examined regularly. The state and federal regulators also take complaints seriously which would dissuade a bank from trying to step over that line.
Some states do not have usury rates and allow lenders to charge what the market will accept. This usually keeps rates low, but there will always be those lenders looking to fill a niche in the high risk - high return segment.
In some cases you must also consider what is in the finance charge. After looking at the web site we saw a $75 fee being subtracted from the loan amount. Some states allow for a given rate of interest, plus allowable fees, to arrive at the Annual Percentage Rate, which expresses the annualized cost of the loan. That fee can quickly push the APR up while the interest rate is still within acceptable state requirements.
The bank that is behind these loans, in most states is a state regulated bank from South Dakota. SD has a general limit of 15% but there are special limitations for loans under $5,000. They may allow certain fees, terms and the category of the loan.
Whether you would want to borrow from a lender promoting such a high APR is up to you. We don't see a $1,000 unsecured loan as being routinely offered for 42 months. That is too long a repayment period for such a small loan. Clearly, this will appeal to a higher-risk borrowing segment.
Published on BankingQuestions.com 1/31/07
|
| |
|
Accounts
Article
Q&A
Podcast
Video
Blog
Discussions
PDF
Powerpoint
