Report says Kentucky laws could put installment loan borrowers at risk
New research reveals Kentucky law puts those who take out installment loans at risk. The Pew Charitable Trust is calling for more protection and transparency for borrowers. This type of loan has not been studied as much as payday loans so far.
Kentucky payday lenders can charge average interest rates of 469%, and while installment loans cost less, they come with other risky features. The study shows that origination fees and expensive credit insurance drive up the cost of installment loans.
Alex Horowitz is a senior consumer finance executive with the Pew Charitable Trust. He said Kentucky should move away from payday loans while improving regulation of installment loans. Horowitz used Ohio as an example of a state that has reduced risk for subprime borrowers or people with low credit scores.
“Ohio recently changed its state law to reform payday loans and make them operate as installment loans where borrowers repay in affordable installments. Kentucky hasn’t done that yet,” he said.
Horowitz said if payday loans were to exist, they needed collateral. He said payday lenders got special treatment in Kentucky and don’t have to meet state interest level limits. Horowitz said there isn’t much research on installment loans, but about 10 million Americans use these loans each year. Pew found that two-thirds of all installment loans are refinances of existing loans.