No Interest Auto Repair Loan Money Pit
You are driving along without a care. Then, your vehicle suddenly loses power and enters into a mechanical death rattle. Your vehicle is towed to a repair shop that is part of a reputable national chain. That gives you some peace of mind.
However, when the mechanic diagnoses the problem, the cost is more than you can afford. No problem, the shop manager tells you. You can pay for the repairs with an easy immediate loan. Oh, and the good news is that you have 90 days to repay the loan without being charged interest.
You know your state has usury laws that limit interest charges. So you figure that even if you pay late, the interest will not be severe.
All’s Well That Ends Well – But This is Not Over
Your car is repaired and you go on your way. Then, life happens and you can’t pay your loan within 90 days. As a result, you are now being charged interest well into three figures.
Three figures!?!?! How can that be? That violates the state’s usury laws. Three-figure interest can not be legal, you say.
Oh, but it can and is. That is because you did not get your loan from a bank in your state. Your loan was issued by a company that uses a bank in a state without usury laws.
Circumventing State Usury Laws
Most states (43) have usury laws prohibiting high-interest loans. However, the Trump administration introduced a new banking rule that took effect in 2020 referred to as “rent a bank”.
Rent a bank allows companies to use nationally chartered banks and banks in states without interest caps to make loans. As a result, those companies can charge three-figure interest.
EasyPay Finance & Transportation Alliance Bank
One of the largest companies providing buy now pay later auto repair loans is EasyPay Finance. It uses Transportation Alliance Bank (TAB) in Ogden, UT to make its loans. The reason? There are no caps on personal loan interest rates in Utah.
EasyPay has or has had agreements with many auto repair shops operating under nationally known brands including AAMCO, Big O Tires, Grease Monkey, Jiffy Lube, Meineke, Midas, and Precision Tune Auto Care, according to Consumer Reports. Most of the repair shops operating under those brands are independently owned. As a result, the shop owners have made their EasyPay agreements independently.
Jiffy Lube told Checkbook that none of its franchises work with EasyPay anymore.
Consumer Reports found that these shops are steering customers into loans that can result in 189 percent interest.
A 2020 study by Lending Tree found that 43 percent of Americans have gone into debt to pay for auto repairs.
“Loans at 189 percent are illegal in most states, but TAB Bank is helping EasyPay Finance evade those laws and multiply the pain of an expensive car repair,” Lauren Saunders, associate director at the National Consumer Law Center told Consumer Reports.
EasyPay Responds
EasyPay is operating legally. It says it charges interest of 25.9 to 199 percent based on a credit profile and repairs.
It further maintains in a statement to Checkbook that, “Each repayment option aims to serve the needs of the borrower, and costs and terms are clearly communicated to each borrower prior to entering into any financing agreement.”
EasyPay’s statement to Checkbook also defended TAB Bank.
“Under the applicable laws and regulations, a state bank, like TAB, may charge, on any loan, an interest rate allowed by the state in which the bank is located,” stated EasyPay.
Consumer Complaints
Numerous complaints have been logged about EasyPay with the Better Business Bureau (BBB), Consumer Finance Protection Bureau, and consumer review sites.
Several complaints allege that EasyPay notified the customers that their first payment via automatic bank draft could not be processed. As a result, EasyPay determined the customer violated the loan agreement. That lead to EasyPay accessing a penalty and instituting interest charges immediately.
“I found this very strange,” one consumer wrote to the BBB, “ as I have more than enough money in my account to cover the initial payment.”
Another BBB complaint detailed a similar experience. The customer reported being unable to contact EasyPay to resolve the issue.
Meanwhile, EasyPay got its money and assessed interest on the loan balance. “Yet today,” states the complaint, “payment went through no problem with no further action from me because I could never get them on the phone.”
Several complaints refer to EasyPay using “mafia interest rates”.
One recent complaint with the BBB is typical of the bind buy now pay later customers experience.
“I’ve had a $2300 loan with them since Nov. 2021,” a May 29th complaint states. “The 90 interest program is a scam and joke. I’ve paid over $2000 in interest, and my balance owe keep going up.”
What You Can Do
You may be able to pay for car repairs without turning to lenders that charge exorbitant interest rates.
- Start by working with a reputable mechanic. You can find one by checking a shop’s history with the Better Business Bureau’s website. You can also look for a mechanic approved by AAA.
- Use a credit card. Even high-interest cards have limits to what they can charge that is far below the buy now, pay later lenders.
- Prepare in advance. An emergency fund is good for dealing with any unexpected expenses. AAA suggests setting aside $50 a month specifically for auto expenses.
Conclusion
Read the contract and know what you are getting into.
If you do not understand the terms of a legal agreement, do not sign.
If you can not pay on time, do not sign. That may mean you walk or hitch rides with family and friends. However, that is better than being chained to an ever-growing debt.
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Max K. Erkiletian began writing for newspapers while still in high school. He went on to become an award-winning journalist and co-founder of the print magazine Free Bird. He has written for a wide range of regional and national publications as well as many on-line publications. That has afforded him the opportunity to interview a variety of prominent figures from former Chairman of the Federal Reserve Bank Paul Volker to Blues musicians Muddy Waters and B. B. King. Max lives in Springfield, MO with his wife Karen and their two cats. He spends as much time as possible with his kids, grandchildren, and great-grandchildren.