Congress targets lenders that charge sky-high interest rates

Elise Amendola/Associated Press

For consumers short on cash and lacking good credit, there’s another option when it comes time to pay for auto repairs or buy a new dog or other pet in Massachusetts.

But it comes at a very high cost, with interest rates as high as 189 percent.

The loans are made by EasyPay Finance, one of about a dozen “nonbank” lenders being scrutinized by Congress for allegedly evading the usual caps on interest rates by making what critics say are sham affiliations with banks.

Of those dozen lenders, EasyPay is the only one operating in Massachusetts, with about 100 auto repair shops and a handful of pet stores offering its loans.

Here’s what’s going on:

Q. How does EasyPay work?

A. I talked with two auto repair shop owners who offer EasyPay, and one who said he refuses to do so because of what he called its “shockingly high interest rates.” (They asked not to be identified by name.)

The typical scenario is one of desperation. The owner of a broken-down car or truck gets an estimate for the cost of repairs, but can’t afford it. At that point, the shop management tells the owner about EasyPay.

A loan can be arranged in hours, entirely online and via text messages. When the loan is approved, EasyPay makes a deposit covering the cost of repairs directly into the shop owner’s bank account (minus a 2.99 percent fee).

EasyPay says on its website that loans are available “whether you have good credit or no credit” and without putting any money down.

Q. What does EasyPay require of applicants?

A. A cellphone, e-mail address, and bank account for pre-authorized debits. Applicants must have at least $750 in income per month, according to the EasyPay website. (EasyPay did not respond to my repeated e-mails and calls asking for comment.) Loan amounts range from $350 to $5,000.

Q. Can the loan be repaid early?

A. Yes. EasyPay heavily promotes a feature that allows borrowers to pay off their loans within 90 days at zero interest (a $40 processing fee is required). But borrowers who are in such dire financial straits that they accepted EasyPay’s draconian terms in the first place may find it impossible to do so.

Q. What are EasyPay’s interest rates?

A. As part of my research, I called EasyPay as an ordinary prospective customer. I was quoted interest rates ranging from 35.7 percent to 189 percent, depending on my credit history. One of the auto shop owners I talked with said most of the loans he was familiar with were at the high end.

Q. How much are the monthly payments on 189 percent interest installment loan?

A. On a $500, six-month loan, the monthly payments would be about $135, and the total interest would be almost $310. For a $2,000, 24-month loan, the monthly payments would be about $325, and the total interest would be almost $5,800.

Q. Doesn’t Massachusetts prohibit ultra-high interest rates?

A. Yes, the state caps the interest on a $500, six-month loan at 37 percent, according to data compiled by the National Consumer Law Center. Under those terms, the monthly payment would be $93 and total interest $55.

On a $2,000, two-year loan, the cap is 24 percent. Under those terms, the monthly payment would be about $106 and total interest $538, the NCLC says.

But someone borrowing $2,000 for two years from EasyPay at its top rate would pay more than 10 times as much in interest than is allowed by the state of Massachusetts.

Q. How does EasyPay get around Massachusetts law?

EasyPay has affiliated with a bank, and a state has no power to regulate a bank based in another state. The NCLC and other critics say the affiliation is a sham that allows lenders like EasyPay to skirt the law.

EasyPay is affiliated with TAB Bank, based in Utah, according recent testimony before the Senate Banking Committee. In her testimony, Lisa F. Stifler, of the Center for Responsible Lending, said TAB Bank is “helping EasyPay Finance make predatory loans for . . . pets, auto repairs, and other products.”(TAB declined comment.)

Q. What does “rent-a-bank” mean?

A. It’s when a nonbank lender that otherwise would be subject to a state’s interest rate cap affiliates with a bank “on paper” for the purpose of evading the limitation. The bank is said to be “renting” its name to the true lender for use in loan documents.

Q. Why is this now getting the attention of Congress?

A. In the past, courts have allowed law enforcement agencies, such as state attorneys general, to investigate agreements between nonbank lenders such as EasyPay and banks to determine who is the “true lender,” no matter what the documents say.

If the loan is made in the name of the bank, but the nonbank lender provides the capital, assumes the risks, and takes over ownership of the loan after it is consummated, courts have allowed enforcement of state usury laws.

But under the Trump administration, the agency that regulates national banks promulgated a rule that said law enforcement agencies could no longer look beyond what the loan documents say. If the documents say the bank is the lender, no further inquiry is allowed, according to the new rule.

Q. What’s happening in Congress?

A. On May 11, the Senate voted, 52 to 47, to overturn the Trump administration rule. (The vote was bipartisan, with three Republicans joining Democrats in favor.)

Q. What happens next?

A. The House is considering a bill to do the same thing. It’s now in the House Financial Services Committee. A vote of the full House could come at any time.

Q. What would that mean for EasyPay in Massachusetts?

A. The office of Attorney General Maura Healey enforces state interest rate caps. “We are aware of EasyPay Finance and are very concerned about its reported practices,” the AG’s office told me last week.