Urban Trust ends controversial prepaid feature

On Feb. 1, 2013, prepaid card issuer Urban Trust Bank officially discontinued the overdraft protection feature on its Visa Inc.-branded prepaid cards. Orlando, Fla.-based UTB said elimination of the feature helps the bank streamline card offerings and better serve the needs of its customers. But federal bank regulator Comptroller of the Currency (OCC) might have a different version of why UTB ended overdraft protection on prepaid cards.

In September 2012, the OCC ruled that UTB and payday lender CheckSmart Inc. evaded payday and usury laws in Arizona and Ohio by loading payday loans on prepaid cards. The OCC said CheckSmart disguised payday loans as either lines of credit or overdraft protection offered via prepaid cards.

The OCC stated that CheckSmart's payday loan program, facilitated with UTB-issued Insight prepaid cards and managed by Insight Card Services LLC, which is partly owned by Dublin, Ohio-based Community Choice Financial Inc., offered payday loans "cloaked as overdraft fees of $0.15 per $1 negative balance (or $15 per $100 borrowed)."

The regulator also reported that UTB and its partners had ended the line of credit feature, where "loans cost $14 to $15 per $100 borrowed, or an annual rate of about 400 percent, but the costs were cloaked in various fees designed to evade state laws." However, the regulator faulted UTB and the others with continuing the overdraft protection practice.

In May 2012, a coalition of consumer advocacy groups led by The National Consumer Law Center urged the OCC to shut down CheckSmart's payday loan program. The coalition said CheckSmart used the Insight prepaid cards to provide payday loans in Arizona and Ohio, where state laws set the maximum usury rate at 36 percent and 28 percent respectively.

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