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"Puppy Laundering" and Other Reputational Risks of Fintech Partnerships

3 min read
Sep 6, 2022

Update: In February 2023, the bank's CRA rating was downgraded to "needs to improve."

Americans love dogs.  

Over 63 percent of American households own at least one pet dog, according to the Humane Society of the United States. Among these households, over 95 percent consider their dog to be a member of their family. 

You know what we don’t like, though? People who hurt dogs. Cruella De Vil, the villain from 101 Dalmatians who turns puppies into fur coats, is consistently ranked among the top 10 on every list of all-time Disney villains. She may be stylish, but animal cruelty is a bad look for everyone.  

The dangers of banking (or appearing to bank) Cruella De Vil 

That’s a lesson one Utah Bank is learning after animal rights and consumer groups called it out for financing the purchase of puppy mill puppies through a fintech partner, according to American Banker.

The bank works with a fintech that partners with small and medium-sized businesses to provide financing for consumers making purchases. The fintech’s partners include pet stores that sell dogs sourced from puppy mills, commercial facilities that often breed as many dogs as they can without thought for the health, safety, or social needs of the animals. Not only are the conditions in puppy mills considered inhumane, it also can result in unhealthy dogs which are sold to an unsuspecting public. (This differs from responsible breeders.) Some states have outlawed pet stores from selling dogs from puppy mills. 

The bank didn’t know about the puppy mill until consumer advocates looked into the high-cost loans and traced one, underwritten by the Utah bank, to a pet store known for “puppy laundering,” or selling puppies without disclosing where they came from. (In some instances, puppy mill puppies are sent to fake rescues before being sent on to pet stores and sold as “rescues,” or dogs that were rescued from animal shelters.) 

The result comes as no surprise who has anyone ever seen animal rights advocates protesting outside a pet store. Consumer and animal rights advocates teamed up in a campaign protesting the bank and the fintech. It included press releases, a statehouse rally, #predatorypuppyloan hashtags with the bank’s name, and an FDIC petition, to name a few. 

Reputation risk: Puppy mills got more headlines than ‘predatory’ interest rates 

It’s worth noting that while the uproar over animal cruelty made major headlines, the reason these loans came to the public’s attention in the first place was their extremely high rates. The National Consumer Law Center reported that these pet loans had annual percentage rates (APRs) between 130 percent to 189 percent, rates it says are illegal in most states for non-bank lenders.  

The loan in question was for $2,500 with an APR of 151.98 percent. 

Fintech due diligence: What actions are your fintech partners taking in your name? 

The bank president, who owns a rescue dog, initially denied his bank had made the loan, telling American Banker "We have assurances from the retailers that they verify and track the sources of their pet.” 

However, he then “reassessed his statement” after seeing evidence that his bank had made the loan. 

This brings up an important question about due diligence for financial institutions working with fintechs: 

Where and to whom are your fintech partners making loans?

Are there any limitations or morality clauses in your contract preventing fintech partners from making loans to vice or ethically questionable businesses?

If so, what kind of monitoring is in place to ensure fintech partners are fulfilling their obligations? 

Have you assessed the risks of making high-cost loans through a fintech partner?

Beyond issues of law, do the rates your fintech partners offer align with your institution’s mission, vision, and values? (A fintech partner may be a good source of revenue, but it might not be the best cultural or strategic fit.)

When someone is engaging in business using your institution’s name, it’s not just an opportunity for fee income and profits. It’s also a potential reputation risk.

Before signing on the dotted line with a fintech, make sure you assess the advantages and disadvantages of the partnership and whether it aligns with your bank’s identity and strategy. Conduct due diligence to know exactly who you’ll be working with—and who the fintech works with. Have monitoring in place to ensure your fintech partners is behaving in a responsible, compliant, and ethical manner.

Just as with every third party, vendor management is a must when working with fintechs—unless you want to be painted as a villain in your community.

How thorough is your fintech partner due diligence? 

Download our Due Diligence Checklist for Fintech Partnerships

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