CHAPTER 3, A. All Bark and No Bite? Pets as Collateral for Secured Loans

• Jurisdiction: United States

A. All Bark and No Bite? Pets as Collateral for Secured Loans

ABI Journal

July 2019

Laura N. Coordes

Arizona State University College of Law

Phoenix

Earlier this year, a pug named Edda made international news after debt collectors took her from her human family in Ahlen, Germany, and auctioned her on eBay.¹ City officials used the price she fetched (pun intended) to pay off the family's unpaid bills, which included a dog tax owed to the city.²

Many in Germany were outraged by the pug's seizure and sale. Much like in the U.S., pets in Germany are often treated like human family members; one activist described the situation as the equivalent to "putting [your] grandfather on eBay."³ Seizing pets for debt repayment is fairly uncommon in Germany, and although there is an exception for high-value pets such as Edda, the practice is generally illegal.⁴ So shock and outrage in Germany — and around the world — is perhaps an unsurprising reaction.

Although animal lovers might not want to believe it, it is possible for pets in the U.S. to be seized and sold for debt repayment. This article examines the practice of using pets as collateral for loans and explores pet repossession in the U.S. The focus here is on pets like Edda: those whose primary purpose is to serve as a companion, not as livestock or some other working or breeding animal. Although security interests in pets and pet repossession might be uncommon in the U.S., the issues that they raise serve to remind us that the law on the books does not account for the sentimental value that society often places on pets.

Pets as Loan Collateral

The idea of putting a pet dog or cat up as security for a loan might seem farfetched, but it is possible for pets to serve as collateral for loans in the U.S. A pet like Edda, who is a companion animal, would likely be classified as consumer goods under Article 9 of the Uniform Commercial Code (UCC).⁵ As others have pointed out, nothing in the Credit Practice Rule's section on unfair credit practices seems to prohibit a lender from taking an interest in a pet as collateral, regardless of whether the loan is purchase-money in nature.⁶

Of course, just because pets might become collateral does not mean that they should. For one thing, not all pets are good candidates to serve as collateral. Presumably, a lender would not be interested in a pet as loan collateral unless the pet had an ascertainable (and likely significant) market value. For this reason, purebred dogs and cats, as well as some exotic animals such as birds, might be valuable enough to serve as collateral, but a lender is unlikely to take a security interest in a mixed-breed dog of uncertain lineage, for example.⁷ Many pets also have limited life spans,⁸ so a lender would want to ensure that the pet is likely to be alive for the duration of the loan.

In cases where the loan being taken out is not being used to purchase the pet being put up as collateral,⁹ it might be challenging to determine the value of the pet. For example, some criticized the German debt collectors who seized Edda after they set her price at 750 euros "or best offer" on eBay. Some characterized the stated price as "a steal."¹⁰ The pug's purchaser later admitted that Edda's price was approximately half of what she would have expected to pay for a purebred of Edda's breed.¹¹ For its part, the city simply needed to prove that the pug was valuable enough to fall within the law's exception — something city officials claimed was proven when Edda was sold on eBay for her stated price.¹²

In spite of the challenges involved with putting pets up as loan collateral, the practice does occur in the U.S., typically when someone wants to buy a pet and cannot afford it. In these cases, a pet financer, such as Wags Lending, might step in to provide a loan to enable the prospective pet owner to purchase the pet.¹³

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