By Deborah Adamson
Q: Is 29.975 percent APR on a loan legal in Hawai'i? On Dec. 18, I received a check in the mail for $3,500.74 from a lender. The letter that came with the check said that this was a loan. To get the personal loan, I had to cash the check by Jan. 31. The finance charge was about $2,200 on the $3,500 loan. I was shocked to receive this because I have excellent credit and I believe I can borrow money at about 5 percent. Christie Adams, Hawai'i Kai
A: "Yes, it is permitted under the law," said Marvin Dang, attorney for the Hawai'i Financial Services Association in Honolulu.
Hawai'i does impose caps on interest rates charged by local financial institutions, according to the Division of Financial Institutions at the state Department of Commerce and Consumer Affairs.
For credit cards, the state limit is an annual percentage rate, or APR, of 18 percent, said Steve Levins, executive director of the state Office of Consumer Protection.
Out-of-state credit card companies can charge Hawai'i consumers higher rates, as long as they conform to the laws in their state.
For many other loans, the Hawai'i maximum is an APR of 24 percent, said Lynne Himeda, state deputy commissioner of financial institutions. There are two exceptions which allow lenders to charge more:
If the loan is on a homeowner's primary mortgage; and
If the lender is licensed by the state to charge higher rates.
Lenders who can charge more than 24 percent are still limited by a formula that translates into a maximum APR of about 30 percent.
The lender who sent Christie Adams a check is licensed by the state to charge more than 24 percent.
What Adams got was what the industry calls a "live check," Dang said. Unlike loans with open-ended terms, these loans typically have a set time period by which you have to pay back the money, plus interest.
The timing of the check coming a week before Christmas with an expiration date of Jan. 31 was a savvy strategy.
"It's very clever marketing," said Anne Deschene, president and chief executive of the Better Business Bureau of Hawaii. "She could have signed it in December and have the money for Christmas, or she has until the end of January to do it ... (because) ... she overspent for Christmas."
Unfortunately, the people who tend to take the lure are those who already are in financial trouble, Deschene said.
That's why consumers should read the fine print of any unsolicited offer they receive, Levins said.
Research the company, starting with its record at the Better Business Bureau, Deschene said. You can check out a company online at www.hawaii.bbb.org or call 536-6956. There's also a senior hotline to report scams 536-8609 on O'ahu, (888) 333-1593 on the Neighbor Islands.
But a higher APR doesn't mean it's always fraudulent.
"It's not necessary illegitimate," Deschene said. "It's not really that different from people who want to give you loans even if you have a bad credit rating. It's not wise (to take it) but it's not illegal, either. They have the right to offer what they can under the law, and you have the right not to buy it."
Out-of-state credit card companies that can charge higher interest rates are restricted only by what consumers will accept. If they ask for too much money, they're going to lose customers.
"Rates are not astronomical, because the market has an influence on that," Levins said.
Got a personal finance question? Contact Deborah Adamson at firstname.lastname@example.org or 525-8088.