Illegal Interest Rates
The finance laws that govern caps on interest rates that lenders can charge vary from state to state. However, certain APRs (annual percentage rates) are clearly unlawful and considered beyond any bounds of reason. They are simply “unconscionable” in the eyes of the law. Unbelievably, some lenders charge as much as 100% or more when the typical high interest rate for at-risk borrowers is often less than 40%. A simplistic way to look at this in real dollars is that a couch purchased for $1,000 under a 12-month payment plan will cost the consumer around $2,000. Keep in mind that there are many factors that affect the actual cost of a loan in addition to the APR, such as the number of payments per month, the total length of the loan, early payments, and interest-free payment periods.
Lenders have many schemes for getting away with charging consumers unconscionable interest rates. A primary tactic is creating a loan application process that is intended to hide the interest rate from consumers until after they have signed the financed installment sales contract, or at the very least discourage disclosure of the terms of financing and APR at the point of sale. Under the Federal Truth In Lending Act, consumers are entitled to know all the terms of financing before entering into a loan. This allows consumers to shop around for the best possible financing for their purchase or make the decision to forgo the purchase altogether. This is a consumer right.
A very real risk of being financed at an unconscionable interest rate is the inability to pay off such costly loans. Life happens, people get sick, lose their jobs, and face all kinds of unexpected events. Other consumers may be so distraught upon learning of an unconscionable interest rate that they refuse to pay more. However, when a loan is left unpaid, the lender can report that loan as delinquent on the consumer’s credit and send the account to collections, resulting in substantial risk of harm, such as rejection of a home rental application, higher APRs on credit cards and mortgages, or rejection for job applications.
In the Andrade case in the Northern District Court of California, No. 3:18-cv-06743-SK, the Law Office of A.L. Hinton and the law firm Green & Noblin successfully challenged triple-digit interest rates as violative of California consumer protection statutes and financing laws. The district court held that the 120% rate of finance charge charged to Ms. Andrade on her retail installment contract was unconscionable and ordered the defendant to reimburse all the money she paid on the retail installment contract and clear the delinquent retail installment contract from her credit report.
If you believe your rights have been violated, contact the Law Office of A.L. Hinton. To talk about your case with an attorney, call 559-691-6900 or submit your information via the Contact Form.