Installment loans are typically, shorter-term, high-interest, loans to borrowers with severely damaged credit. These loans usually have longer terms than the 2-3 week turnaround for payday loans, and the borrower agrees to pay the money back in equal, monthly installments, but some of those who have worked at installment lenders say these loans are laden with charges aimed at getting around interest-rate rules and keeping the borrower in a cycle of indebtedness.

ProPublica has published an extensive article on the topic of installment loans, including inside information from a number of people who have first-hand knowledge of how installment lenders tack on unnecessary insurance products, the premiums for which are then financed as part of the loan. So a loan with an already high APR of 90% could have an effective APR of more than 140% (even if that’s beyond the state’s limit on interest rates) once all the insurance costs are added in. Meanwhile, the lender is making both a commission on the insurance and interest on the financed premium.

“You were supposed to tell the customer you could not do the loan without them purchasing all of the insurance products, and you never said ‘purchase,’ ” recalls one former employee of World Finance Loans, where she became a branch manager at the age of 19. “You said they are ‘included with the loan’ and focused on how wonderful they are.”

She tells ProPublica she had a hunch these insurance products were not required by law, so she checked with a lawyer who confirmed.

Thinking she was helping out her already cash-strapped customers, she began telling applicants that they did not need the insurance, meaning they could either afford to borrow more money or have smaller monthly payments.

She says she once advised a couple who had come into renew their loan that — by dumping the insurance on the renewal — they could receive several hundred additional dollars. When her regional supervisor found out, she claims he threatened to discipline her, though she says “All they could do was give me the stink eye,” because there was no law requiring those insurance add-ons.

However, she says that it later became more difficult to remove insurance products from a loan. Whereas previously she’d been able to just delete the insurance premiums from her screen, she now had to submit a form, along with a letter from the customer, to World’s central office.

World tells ProPublica that the former branch manager’s claims are false. After she quit, the company had sued her, alleging theft. But after her attorney demanded proof of these allegations, the lender withdrew its complaint.

But she’s not the only one calling shenanigans on these insurance premiums.

“Every new person who came in, we always hit and maximized with the insurance,” says a former World employee from Georgia. “That was money that went back to the company.”

And another former branch manager says that, even though she feels that some people need certain insurance products, when she needed to take out an installment loan for herself, she declined any add-on insurance.

“Because I knew that that premium of a hundred and blah blah blah dollars that they’re charging me for it can go right into my pocket if I just deny it,” she explains.

You should definitely check out the entire ProPublica story on installment loans here.

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