Fintech partner’s predatory puppy loan gets TAB Bank low CRA rating

In what could be a shot in the arm for banks partnering with fintechs that provide high-cost consumer loans, the Federal Deposit Insurance Corp. downgraded the Transportation Alliance Bank’s Community Reinvestment Act rating from “satisfactory” to “requires improvement” based on the behavior of one of its fintech lending partners.

The FDIC did not say which TAB Bank partner was at fault or what the misconduct was, other than that it was an “unlawful credit practice” that violated Section 5 of the Federal Trade Commission Act, Unfair or Deceptive Acts or Practices. The breach affected a large number of consumers over a long period of time, according to the FDIC, which declined a request for an interview.

“TAB Bank has a significant history of receiving outstanding CRA ratings from the FDIC during the bank’s lifetime,” a bank spokesman said. “TAB Bank is cooperating with the FDIC and has committed to doing whatever is necessary to return its CRA rating to outstanding.”

Other banks with fintech partners that provide high-cost consumer loans may be next.

“It is black-letter regulatory policy that a bank like TAB is ultimately responsible for the actions of its fintech partners, but oversight and enforcement in this area was spotty,” said Todd Baker, senior fellow at the Richman Center for Business, Law and public policy at Columbia University and managing principal of Broadmoor Consulting. “We can expect more regulatory actions in the future as partner banking arrangements are increasingly a focus of investigators.”

It is unusual for a violation of this type to affect a CRA assessment decision, Baker said.

“But in some ways a CRA downgrade is a tougher penalty for the TAB to deal with than a fine or consent order,” he said.

One of TAB Bank’s partners, EasyPay Finance in Carlsbad, California, has been in the crosshairs of consumer and animal activist groups for a year. The company provides so-called puppy loans, car loans and other consumer loans at high interest rates. EasyPay did not respond to a request for an interview.

In March last year, the Humane Society and other animal groups made TAB’s practice public finance predatory puppy loans through EasyPay. Such loans typically finance the purchase of pets raised in abusive puppy mills, animal rights activists have said.

In June, consumer groups, including the National Consumer Federation and the National Consumer Law Center, flooded the FDIC with comments and petitions that TAB Bank’s CRA rating be downgraded because it helped EasyPay Finance charge up to 189% on loans offered through retail stores, including auto dealerships, furniture stores and pet stores in states that have interest rate caps.

In December, the state of Iowa and the Iowa Division of Banking settled claims with TAB Bank that the bank charged usurious interest on 1,611 loans to Iowa consumers between 2020 and 2022, well above the state’s 21% interest rate cap. These loans were all granted through the collaboration with EasyPay. Iowa regulators forced the bank to provide restitution to Iowa consumers to compensate for interest they paid above the current 21% APR cap.

Consumer advocates applauded the FDIC’s recent CRA downgrade of TAB Bank, which has $1.2 billion in assets and is based in Ogden, Utah.

“TAB Bank has confused the community through its predatory rate-a-bank loans and deserves this downgrade,” Lauren Saunders, associate director of the National Consumer Law Center, said in a statement. “No bank should help predatory lenders avoid state interest rate laws and make destructive loans that trap people in debt.”

Nadine Chabrier, senior policy adviser at the Center for Responsible Lending, said she hopes this is the beginning of further regulatory action against banks and their fintech partners that enable overpriced loans to consumers.

“We urge the FDIC to take additional steps to stop all banks it regulates from harming consumers through rent-a-bank schemes,” she said.