Thursday, May 10, 2012
Payday loans on prepaid cards under scrutiny
Consumer advocacy groups lead by The National Consumer Law Center sent a letter to the Comptroller of the Currency asking that a payday loan program facilitated with prepaid cards be shut down. The program instituted by payday lender Community Choice Financial Inc., managed by Insight Card Services LLC and with prepaid cards issued by Urban Trust Bank evade state usury and payday loan laws, according to the letter.
The May 3, 2012, letter stated that CheckSmart, a subsidiary of CCF, offers two types of prepaid card payday loans: one a line of credit that costs $14 per $100 borrowed plus 35.9 percent annual interest, while the other is "styled as an overdraft fee and costs $15 per $100 negative balance."
CheckSmart is reportedly using Insight prepaid cards to provide payday loans in Arizona and Ohio, where the usury limit is 36 percent and 28 percent respectively. "Yet for a 14-day, $300 loan, the annual rate for CheckSmart's line of credit is 401 percent and the overdraft loan is 390 percent," the letter said.
"Prepaid cards and payday loans just don't mix," said Lauren Saunders, Managing Attorney at the National Consumer Law Center. "Prepaid cards should be safe alternatives to bank accounts, not vehicles for evading state law with predatory loans that trap people, often those with the least means, in a spiral of debt."
CCF, Insight and Urban Trust Bank did not return requests for comment. The letter can be accessed at www.nclc.org/images/pdf/high_cost_small_loans/letter-checksmart-occ.pdf .
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