New research reveals how costly auto repairs are turning into a new form of predatory lending. And just like other forms of financial abuse, consumers feel duped and deceived about the associated costs and the time it takes to pay these bills.
Written by Stop the debt trapa multi-member consumer coalition, the report details how national auto repair brands like AAMCO, Big O Tires, Grease Monkey, JiffyLube, Meineke, Midas and Precision Tune Auto Care, are driving people to a predatory lender who engages in a variety of questionable practices and charges up to 189% interest – even in states where triple-digit interest is illegal.
“A car repair can be a devastating expense, and financially fragile families don’t need predatory lenders to magnify the damage,” said Elyse Hicks, consumer policy adviser at Americans for Financial Reform, a member organization of Stop the Debt Trap.
“For most people, having a well-driving car is essential to their day-to-day economic life and to running a family.”
Transportation Alliance Bank (TAB), one of the few rogue banks that lend their charters to help unscrupulous businesses evade state consumer loan laws, is the focus of the research report. The report details how TAB works with its financial partner, EasyPay Finance, a subsidiary of Duvera Billing Services. Even in states that don’t allow triple-digit interest rates, this financial alliance provides high-cost loans through stores nationwide, including auto mechanics and furniture. In other states, EasyPay extends credit directly in its own name, often in the form of retail installment.
The EasyPay Finance website recognizes its loans through TAB Bank in several states, many of which also have large consumers of color: Alabama, Arkansas, District of Columbia, Florida, Georgia, Illinois, Indiana, Louisiana, Maryland, Massachusetts, Michigan, Mississippi, New Jersey, New York, North Carolina, Ohio, South Carolina, Tennessee and Texas. In these and other states, EasyPay may operate under either the state’s Loans Act or its Retail Installment Loans Act.
As a result, hundreds of complaints from across the country have been filed with the Better Business Bureau, the Consumer Financial Protection Bureau (CFPB), and Ripoff Reports.
In one of the most egregious consumer complaints in the reportone consumer claimed that a $1,500 repair bill had exploded into a debt of over $7,000 and was now listed as an overdue item on a credit report:
“Duvera Financial has reported my account as delinquent every month, although this account is in collection. I have previously complained about predatory lending practices such as excessive calling and being harassed about a debt that I did not accept.The interest rate and ongoing charges were not explained to me properly and I think this lender should be out of business.
“The $1,500.00 bill has ballooned to over $7,000.00.
“In this climate, these charges are ridiculous. Also, the account is flagged as open and overdue, which is incorrect. Please remove this account from my credit report.”
Another CFPB complaint came from a Chicago military service member who has already paid a total of $2,300 in 23 payments on a $1,500 loan. Even so, he still owes $1,300, due to his 151% stake.
Other consumer complaints identified other auto repair financing issues:
- Credit applications taken over the phone or to be completed on smart phones, without written copies for consumers;
- Misleading promises of full interest refunds if paid within 90 days, with many barriers preventing consumers from avoiding interest or knowing their refund balance;
- Unauthorized electronic debits that were different from the agreed payment or that continued after execution of a payment plan; and
- Rude and unhelpful customer service and/or administrative errors that result in missed payments, fees, and loss of the interest-free option.
Along with the release of the Stop the Debt Trap report, the National Consumer Law Center released a alert summarizing the growing problem and offer consumers specific advice to protect themselves:
- Avoid any loan charging more than 36% annual percentage rate of charge (APR).
- You can also consider using a credit card. Credit cards provide protection if you have a problem with a purchase, and getting a low-rate loan can be better than an interest-free offer from the auto repair shop that never materializes.
- Always check the terms of a loan before signing or clicking, especially the interest rate, APR and any details of a promotional offer.
- Always get a copy of any signed agreement. Make sure it is consistent with your understanding.
“Auto repair shops should stop driving their customers into a money pit,” said Rochelle Sparko, North Carolina policy director at the Center for Responsible Lending, a member of the Stop the Debt Trap coalition. “The FDIC should stop TAB Bank and the other banks they oversee from sponsoring this exploitation scheme,” she concluded.
Charlene Crowell is a senior researcher at the Center for Responsible Lending.