Consumer Alert: Rochester-area businesses offering high-interest loans. Is your loan interest rate 189 percent?

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ROCHESTER, N.Y. — This Consumer Alert concerns a serious question we want you to think about. 

Would you ever take out a loan if you knew the interest rate was 189 percent? For most of us, the answer is a resounding no. But I’ve learned those kinds of loans are being offered right here in Rochester. You might think it’s illegal.

After all, New York is a state that has a number of consumer protection laws on the books. And loans are no exception. New York caps the interest rate on small installment loans at 25 percent. So companies are doing what consumer advocates call rent-a-bank loans with rates as high as 189 percent.

The National Consumer Law Center is one of many consumer advocacy groups that calls rent-a-bank loans predatory. It was one of the consumer advocacy organizations that recently sent letters to businesses across the country urging them to “stop offering loans through predatory lenders Easypay Finance and Transportation Alliance Bank (TAB Bank).”

Easypay Finance moves its loans through an out-of-state bank called Transportation Alliance Bank (TAB) of Utah, which is not subject to our state’s loan limits. It then offers its financing services to auto repair shops in our area. But consumer advocates argue these loans are often exorbitant with interest rates as high as 189 percent.

Let’s say you’re driving along and your car stops. You learn you’ve blown a head gasket, a repair that will cost $2,000. You put down $500, and the auto repair shop offers you a loan for the remaining $1500 to be paid over 12 months.

But the Consumer Law Center argues Easypay does not disclose the loan is at an interest rate of 189 percent. At that rate, your loan payments are roughly $293. By the time you’ve paid off that repair, you will have paid interest of $2,016. And the total cost would be about $3,516, more than double the amount of the original loan.

While corporations across the country received the letters months ago, according to Easypay’s website, the loans are still in use by thousands of businesses, including auto repair shops in the Rochester area. The site shows 34 auto repair businesses in our area that use Easypay financing. All are under the Monro Inc. umbrella: Monro Auto Service, Mister Tire, and Tire Choice Auto Service.

Monro Inc sent us the following statement:

Monro is committed to providing quality service and competitive pricing for our guests. We emphasize trust, honesty, and safety in all our interactions. We understand that vehicle maintenance and repairs are necessary, but sometimes unexpected, expenses for many households. We offer our guests a variety of payment options so they can decide which option works best for them. In addition to accepting personal payments, we provide several financing options, to include Easy Pay. 

Leaders with Easypay got back to me quickly. A spokesman disputes the contention that their lending practices are predatory and they say it is often the only option available to many. 

“Many Americans are left behind by the traditional banking and credit system. EasyPay facilitates financing options to ensure that these consumers have a trusted and secure choice to access otherwise unavailable credit for pressing needs and discretionary purposes. Through a transparent process, we offer a range of credit tiers based on a borrower’s credit profile, with an interest rebate program designed to encourage repayment. Our products are offered to eligible consumers in accordance with applicable federal and state laws.” – EasyPay Finance

While consumer advocates say Rent-a-Bank loans are more consumer-friendly than Payday loans, they insist there are better options for those with no credit or bad credit. CNBC, Bankrate, and Nerdwallet all have a number of suggestions.