Unexpected car repairs can cost more than some consumers can afford, especially those without traditional credit. That’s why many repair shops, including some big national chains, offer on-the-spot financing through a company called EasyPay Finance.

EasyPay’s loans, which promise “no interest if paid in 90 days”—may seem like a sensible way to pay for an expensive repair. Chances are, it’s not. All too often, that “free financing” turns out to be a costly loan—with interest rates that can be as high as nearly 200 percent.

Listen to audio highlights of the story below:

“Based on the many complaints filed by consumers, it is clear that many borrowers are shocked by the sky-high interest rates attached to these loans, and difficulties in successfully completing repayment,” said Chuck Bell, programs director at Consumer Reports.

As a car owner in Florida explained in a complaint filed with the Consumer Financial Protection Bureau: “The contract states 188.97% which I clearly did not understand at the time I signed at the transmission shop,” he wrote. “I tried to ask them to lower the rate and the representative stated they were following FDIC guidelines and that they could not lower the rate.”

(Note: Any claim that these types of loans are governed by FDIC guidelines is nonsense.)

In May, the Stop the Debt Trap Coalition, which includes Consumer Reports, the Consumer Federation of America, and the National Consumer Law Center, sent letters to AAMCO, Big O Tires, Grease Monkey, Jiffy Lube, Meineke, Midas, and Precision Tune Auto Care urging each company to stop offering EasyPay loans, and “disassociate itself from these practices that exploit vulnerable families.”

Consumers report “being steered into predatory loans with shocking and often deceptive rates hidden in the fine print of applications, frequently not known until after the repairs are completed,” the letters stated.

“Auto repair shops throughout the country, including major auto repair companies, are steering struggling consumers into deceptive, high-cost loans with lasting impacts, including credit report harm and debt collection harassment,” said Rachel Gittleman, financial services outreach manager at the Consumer Federation of America.

In a complaint to the Consumer Financial Protection Bureau, a car owner in North Carolina who used EasyPay Finance to pay for transmission work, said an interest rate was not listed on the paperwork he signed. It turned out to be 130 percent.

“My credit was not perfect, but this amount is ridiculous, and they do not disclose the interest rate until after the car is completely repaired because they know SOME people need their transportation, and this allows repairs to be done in a way that seems easier for people with not-so-perfect credit,” the complaint stated.

Lauren Saunders, associate director of the National Consumer Law Center (NCLC), said based on hundreds of customer complaints, it’s clear that many people don’t understand what they’re agreeing to when they apply for an EasyPay loan.

“People mostly didn’t even realize they were paying interest, and certainly had no idea they were paying interest rates of up to 189 percent,” Saunders told Checkbook. “They often thought they were just being given an interest-free financing plan.”

An EasyPay loan is only interest free if the full amount financed—and a $40 fee is paid—before the end of the 90-day promotional period noted in the contract. Critics claim the program is designed to make it difficult for borrowers to meet those conditions.

Checkbook contacted the seven national chains that received letters from the Stop the Debt Trap Coalition. We heard back from all but Grease Monkey and Meineke.

Shell Oil, which owns Jiffy Lube, told us it “has no relationship with EasyPay Finance, but Jiffy Lube service centers are independently owned and operated by third-party franchisees, who can establish relationships with a variety of different vendors.” EasyPay currently lists certain Jiffy Lube franchises on its website. Jiffy Lube told us that none of its franchisees work with EasyPay anymore and that the companies EasyPay lists on its website will be “taking action to have those listings removed.”

Icahn Enterprises, which owns AAMCO and Precision Tune Auto Care, said “Many automotive service providers, including some of the independently owned and operated franchisees in our network, work with a number of lenders in order to provide drivers with a range of financing options to get them back on the road quickly and safely.”

The TBC Corporation, which owns Big O Tires and Midas, said it offers various ways to pay, and “does not steer any customers to one particular financing source…follows all laws, offers customers many avenues to pay for services…and takes great strides (through automated processes) to ensure finance details are disclosed to those who decide to use any secondary financing prior to the acceptance of the credit offering.” Senior Communications Manager Jonelle Compiana said it is TBC’s understanding that EasyPay “has a strong reputation in the secondary credit financing industry, is lawful, and has demonstrated a commitment to transparency, full disclosure, and a customer-first mentality as part of its business practices.”

Using a ‘Rent-A-Bank’ to Avoid State Interest Rate Caps

Non-bank installment loans with a 189 percent interest rate are illegal in most states. But in some states, Duvera Billing Services (the California company that owns EasyPay Finance), uses Utah-based Transportation Alliance Bank (TAB Bank) to “launder its loans,” so it can “evade state laws” and charge interest rates “that it cannot legally charge as a non-bank lender,” Saunders said.

Because Utah don’t cap interest rates, when TAB Bank finances a loan for EasyPay Finance it can charge whatever it wants. This practice is called “rent-a-bank,” and it’s of questionable legality that consumer advocates would like to see stopped.

The Stop the Debt Trap Coalition is circulating a petition calling on the FDIC to stop TAB Bank and several other “rogue banks” from helping non-bank lenders avoid state interest rate limits. The petition currently has more than 60,000 signatures.

There’s More

In marketing its financing program to auto repair shops, EasyPay Finance promises to boost shops’ revenue by helping “credit challenged” customers pay to have their vehicles serviced. The company’s website calls it a “financial win-win for business owners and customers.”

With no monthly fees or minimum volume requirement, and a merchant fee of only 2.99 percent for loans that are funded, it’s easy to see why a repair shop might offer this financing.

But looking at hundreds of complaints about EasyPay Finance filed with the Consumer Financial Bureau, Better Business Bureau, and Ripoff Report, it’s clear this financing option is often a losing proposition for many customers.

Allegations of misleading or deceptive practices found in those complaints include:

• Interest rates hidden in fine print or not disclosed until repairs are finished.
• Applicants left in the dark about terms, without written copies provided, when they apply over the phone, or are required to apply at the repair shop on tablets or smartphones.
• Deceptive promises of full interest rebates if paid in 90 days, with numerous obstacles that prevent consumers from avoiding interest or knowing their payoff balance.
• Electronic debits that were not authorized, differed from the agreed payment, or continued after a payment plan was fulfilled.
• Rude and unhelpful customer service and administrative errors, leading to missed payments, fees, and loss of the interest-free option.
• Harm to credit reports, including from loans paid in full or reported for the wrong consumer. No response to consumer disputes.
• Debt collection harassment and refusal to honor payment plans, including for those impacted by COVID.

EasyPay Finance Sees Things Differently

TAB Bank did not respond to Checkbook’s request for a comment. EasyPay Finance provided us with this statement:

“EasyPay serves a traditionally underserved community. Many Americans are left behind by the traditional banking and credit system, and EasyPay facilitates finance options to ensure that more people have access to credit to pay for their most pressing needs. We are proud to offer a service where we can bridge this financial gap and do so in a way that operates in accordance with applicable federal and state laws.

“We are transparent with borrowers about the cost of the services and the repayment options, and there is a wide range of interest rates, from 25.9% - 199.0% APR, based on the credit profile of the borrower and the products selected. 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.

“The loans issued by TAB Bank are governed by both federal and state laws and regulations. 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. The interest rates charged are within the legal guidelines of the state of Utah, where TAB Bank is located.

“The process by which consumers submit their credit applications and receive their approval terms is robust, clear, and conspicuous. Every contract is provided with an interest rebate program designed to encourage repayment within the first 90 days as outlined in our FAQs.  We encourage any customers with questions or issues to contact our toll-free Customer Care number (866-438-8372) or online via our EasyPay customer portal.”

Better Ways to Pay

Because prices for new and used vehicles have skyrocketed, many drivers are opting to repair their rides, rather than replace them. The average age of all vehicles on U.S. roads is now 12.2 years, according to S&P Global Mobility. Older vehicles are more likely to need costly repairs.

So, how do you pay for an unexpected auto repair if you’re living paycheck to paycheck?

If you have a credit card—use it. The average interest rate for a general-purpose credit card is currently about 17 percent, according to Bankrate.com. Even if your card carries a high interest rate of 30 percent, that’s still substantially lower than an EasyPay loan with an APR of as much as 199 percent.

Credit cards also provide consumer protections should you have a dispute with the mechanic, or the work was not done properly. You don’t have get those protections if you pay via an EasyPay loan. If you do pay with a credit card, try to pay off that charge as quickly as possible to keep the interest from piling up.

Another option might be a small personal loan from your bank or credit union, or online lender. The Stop the Debt Trap Coalition advises avoiding any loan above 36 percent APR.

As an example, for someone with fair credit and an annual income of $30,000, these loans typically range from about 6 to 36 percent. Click here for Bankrate's list of its best personal loan rates for June 2022.

Anytime you apply for a loan, check the terms BEFORE you sign or click agree. You want to check the interest rate, annual percentage rate (APR), and the fine print for any details about the promotional offer.

“If you’re handed a tablet or told to take out a loan on your smartphone, it’s hard to read that fine print, but you’ve got to do it.” Saunders said.  “Sometimes it sounds interest free, but there’s a lot of tricks and traps that can mess you up.”

Get a copy of the contact you signed, and make sure it’s consistent to what you agreed to.

If you’ve already taken out a EasyPay Finance loan and feel you were not treated fairly, file complaints with the Consumer Financial Protection Bureau and your state attorney general’s office. You can stop ongoing debits from your bank account, but you will still owe the debt and will most likely be sent to collection, NCLC advises.

More Info: Checkbook has advice and ratings to help you find a good auto repair shop.

More Info: NCLC’s Consumer Alert on deceptive auto repair financing practices.

Contributing editor Herb Weisbaum (“The ConsumerMan”) is an Emmy award-winning broadcaster and one of America's top consumer experts. He is also the consumer reporter for NW Newsradio in Seattle. You can also find him on Facebook, Twitter, and at ConsumerMan.com.