The National Consumer Law Center is asking the Office of the Comptroller of the Currency to force Urban Trust Bank to stop issuing prepaid cards that it says are being used for payday loans by Community Choice Financial Inc. in its CheckSmart stores. The timing of the request and release are no accident, as Community Choice is preparing for an initial public offering of stock. The Center says the CheckSmart sotres are offering small-dollar high cost loans through prepaid cards that are in effect the kinds of payday loans that the O.C.C. has warned its banks not to make. From the Center’s press release:
Loans on prepaid cards may seem to be a contradiction in terms, but CheckSmart’s Insight Cards have two different loan features. Consumers who have their public benefits or wages directly deposited onto the cards can enroll in overdraft “protection” at a cost of $15 per $100 overdraft, or they can take an advance of their income at a rate of $14 per $100 plus 35.9% interest. The loans are repaid immediately upon the next direct deposit, resulting in an annual rate of 390% to 401% for a two-week loan.
The questions around these kinds of products are never simple. Convenience, liquidity, and the availability of other financial services all play a role in determining the value of these types of products. The important point is not to confuse the prepaid card, and its benefits with the loans provided with the card. To ban the issuance of a prepaid card over one particular feature could harm the industry and the very users the Center would like to protect.
Click here to read more from the Center’s press release.