Iowa consumers to collect refunds for ‘predatory’ pet loans, auto-repair loans

A Utah-based bank that’s behind high-interest, “predatory” loans for pet buyers must refund money to Iowans who were charged the illegal interest rates.

The requirement is part of a newly announced settlement between the state of Iowa and Transportation Alliance Bank of Ogden, Utah. The settlement follows an investigation into the bank and its loan service provider, EasyPay, by Iowa Attorney General Tom Miller and the Iowa Division of Banking.

The agreement, in the form of an Assurance of Discontinuance, also requires that the bank stop issuing the high-interest loans in Iowa.

Miller alleged that Transportation Alliance Bank, or TAB, failed to comply with the Iowa Consumer Credit Code by offering consumer installment loans that far exceeded the maximum finance charge of 21% APR.

From March 1, 2020, to April 8, 2022, TAB made approximately 1,611 consumer installment loans to Iowans, primarily through auto-repair shops and pet stores, according to Miller’s office.

“There’s a reason Iowa law caps interest rates at 21%, to protect consumers,” Miller said. “These types of high-interest loans careen consumers into debt they can never repay.”

Miller said his office’s Consumer Protection Division began looking into TAB’s lending practices after being contacted in March 2021 by Jeff and Jennifer Bowman, an Iowa City couple who had obtained an EasyPay loan when purchasing a puppy from Petland.

The interest on a $1,500 loan for the Bowmans came to 188.9%. The final cost of their loan at the time they purchased their English bulldog, Zeke, was $3,327.

The Bowmans, whose story was featured in the Iowa Capital Dispatch, had contacted the attorney general’s office and filed a complaint against Petland.  Zeke had lived for 20 months before dying of renal failure, resulting in thousands of dollars in veterinary care.

The attorney general’s office learned the Bowmans had purchased the puppy for approximately $5,000, paying $500 out of pocket, putting $3,000 on a credit card and signing financing papers for a $1,500 loan.

The loan agreement stated that if the couple did not pay the $1,500 debt in 90 days, the interest rate would jump to 188.9%. The National Consumer Law Center says such “predatory” loans have resulted in hundreds of complaints nationwide.

“These types of loans are unconscionable,” Miller said. “My office has worked to prevent these types of lending situations. So-called ‘rent-a-bank’ schemes attempt to circumvent our laws and put consumers deeper in debt.”

The illegally high interest rates were made possible by EasyPay processing the loan through TAB. It’s a process that animal-welfare and consumer advocates call “rent-a-bank,” and it enables financing companies like EasyPay to route loans through out-of-state, federally regulated banks that don’t have to comply with interest-rate caps that are set by states.

Miller and the Biden administration have called for the need to curb “rent-a-bank” lending, in which the banks act as lenders in name only, passing along their state-law exemptions to non-bank lending partners such as EasyPay.

TAB voluntarily stopped making loans in Iowa as of April 8, 2022. Under the new settlement, however, if the company does plan to resume lending, it must inform the state and the Iowa Department of Banking no less than 30 days in advance.

Under the settlement, the restitution plan will apply to Iowa residents who received consumer installment loans from the bank with assistance of EasyPay between March 1, 2020, and April 8, 2022.

The bank has 90 days to provide restitution directly to consumers. TAB did not admit to any wrongdoing as part of the settlement.

Iowa Capital Dispatch is part of States Newsroom, a network of news bureaus supported by grants and a coalition of donors as a 501c(3) public charity. Iowa Capital Dispatch maintains editorial independence. Contact Editor Kathie Obradovich for questions: info@iowacapitaldispatch.com. Follow Iowa Capital Dispatch on Facebook and Twitter.