How buying a puppy led to a 134% interest ‘Rent-a-Bank’ loan – NBC4 Washington
It was love at first sight. Kaleigh Clemmons walked into a pet store in Virginia and knew she had to have a 12-week-old Australian Shepherd she would name Arlo.
She applied for a loan on the spot, accepting $5,000 with an interest rate of 24%. She then signed the contract, which was emailed to her the next day.
But when Clemmons checked her emails, she found another contract for an additional loan that she didn’t remember signing. The email was from another loan company, for a loan of nearly $3,000 for a different puppy kit from the same pet store.
The kit, which included food, pet toys and collateral, had a whopping 134% interest rate.
“It was very overwhelming,” Clemmons said.
Clemmons didn’t buy the puppy kit, but when she contacted the pet store, they insisted she did. When News4 contacted the pet store, they provided two separate loan agreements with electronic signatures from Clemmons on both.
Now Clemmons would have to repay both loans, which will end up costing her another $8,500 on top of the $5,000 she already owes.
Postponing the payment of the high-interest loan could put Clemmons in financial danger.
“It ruins my credit and everything!” said Clemons.
Lauren Saunders, an attorney at the National Consumer Law Center, says what happened to Clemmons is a prime example of predatory lending.
“We see predatory lending on the internet, through websites, and we also see it in the weirdest places, like in pet stores…People walk into a store and they fall in love with a puppy and they can get expensive… …they can offer financing…and before you know it, people are stuck in a 150% interest rate loan,” Saunders said.
Although many states have laws prohibiting charging high interest rates, some lenders are finding loopholes, Saunders said.
“They found this loophole that we call a ‘rent-a-bank’ loan where a predatory lender puts a bank’s name on the documents and says that gives them the right to ignore the law and charge 150 to 200%,” Saunders said.
Banks are exempt from most state interest rate laws. While most do not deceive their customers with exorbitant prices, the NCLC has found a small number of rogue banks that do.
This predatory scheme works because a bank agrees to put its name on the loan to make it look like a bank loan so it doesn’t have to comply with interest rate limits, Saunders said.
This allows some lenders to avoid state caps on interest rates, and the government is aware of this. A number of consumer protection groups, including Saunders’, are calling on the government to ban the practice.
“The FDIC regulates banks that help these predatory lenders charge 150-200%, and so we urge the FDIC to tell banks, ‘No, you have no right to deal with predatory lenders,'” a said Saunders. .
News4 contacted the FDIC, which said it “will not comment at this time.”
Fortunately, there are ways to protect yourself against predatory lending. Before agreeing to sign a loan on the spot, ask to take home the papers to read the entire contract. If the interest rate seems extremely high, it could be a predatory loan. Walk away from the case.
For Clemmons, News4 contacted the loan company who charged him 134% on the $3,000 loan. He agreed to cancel the transaction but did not answer questions about using rent-a-bank.