Payday lender’s debit card criticized
Columbus Dispatch - May 7, 2012
CheckSmart has come under attack again from consumer groups for one of its products, just as its parent company prepares to take the Dublin-based payday lender public.
The groups, led by the National Consumer Law Center, have complained to federal regulators about CheckSmart’s prepaid debit card, which they say allows the company to get around state law limiting interest rates on payday loans, including Ohio’s 28 percent cap imposed in 2008 by voters. Instead, the company can charge what works out to a 400 percent annual interest rate.
“Obviously, we have some serious concerns,” said David Rothstein of Policy Matters Ohio.
The CEO of CheckSmart’s parent, Dublin-based Community Choice Financial, said the cards comply with state and federal laws.
“I find the allegations to be baseless,” Ted Saunders said. “We have the most comprehensive and consumer-friendly set of prepaid cards offered in the marketplace, and we’re proud to provide them.”
The consumer groups sent a letter on Thursday to Thomas Curry, the nation’s comptroller of the currency, who oversees banks, asking him to stop Community Choice’s financial partner, Urban Trust Bank in Florida, from helping Community Choice avoid the state caps with the prepaid cards. Urban Trust officials could not be reached for comment yesterday.
The prepaid debit-card service represents about 6.5 percent of Community Choice’s business, but it has been rapidly growing, according to a filing with the Securities and Exchange Commission as part of the company’s plan to sell shares to the public. The number of accounts grew by 62 percent in 2011.
About half of the company’s business comes from fees and interest on its short-term loans.
The prepaid cards offer customers the ability to directly deposit all or a portion of their payroll checks onto the cards. The cards also provide overdraft protection that Community Choice says offers lower fees than traditional banks and allows customers to load loans directly on to the cards, the filing says.
The feature is available in Arizona and certain stores in Ohio, and it might be rolled out in additional states, the company said in the SEC filing.
The company said it makes money from the fees and overdraft charges.
Critics say the cards keep borrowers in debt
“Research shows that these loans trap borrowers in a cycle of expensive long-term debt causing serious financial harm, including increased likelihood of bankruptcy, paying credit-card and other bills late, delayed medical care, and loss of basic banking privileges due to overdrafts,” according to the letter the National Consumer Law Center and other groups sent to Curry.“Moreover, CheckSmart’s direct-deposit requirement could cause consumers to switch from a bank account to a prepaid card and thus become unbanked.”
“They want it to be a bigger part of their business,” said Rothstein, of Policy Matters. The service can generate more fees, allows the company to ignore the caps on interest rates, and can reduce costs, he said.
The timing of the company’s initial public offering of stock, meanwhile, remains uncertain, Community Choice CEO Saunders said. “We’re still looking forward to … getting the company public,” he said.
Shares have been priced at $14, and the offering would raise $137.1 million for the company, according to the filing.
The company has said it expects to use the proceeds to repay debt, to fund acquisitions and for other corporate purposes.
It generated $306.9 million in revenue and a profit of $16.9 million last year. The company has 435 stores in 14 states.