OCC comes down on CheckSmart, Urban Trust Bank

The federal bank regulator Comptroller of the Currency (OCC) determined that prepaid card issuer Urban Trust Bank and payday lender CheckSmart Inc. evaded state payday and usury laws in Arizona and Ohio by loading payday loans on prepaid cards. The OCC said Orlando, Fla.-based UTB agreed to correct the violations, submit to an audit of its prepaid card program and also submit to an OCC review of the bank's business plan to address deficiencies in its oversight of CheckSmart.

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 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. The coalition said CheckSmart, a subsidiary of CCFI, used the Insight prepaid cards to provide payday loans in Arizona and Ohio, where the usury limit is 36 percent and 28 percent respectively.

The OCC said CheckSmart disguised payday loans as lines of credit, or overdraft protection, on prepaid cards. "The 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," according to the OCC.

The bank regulator said UTB and CheckSmart discontinued the prepaid card-payday loan scheme after the consumer groups leveled their criticism of the program. But the partners "continue to offer payday loans cloaked as overdraft fees of $0.15 per $1 negative balance (or $15 per $100 borrowed)," the OCC noted.

CCFI, which planned to enter into an initial public offering in early May 2012, terminated the IPO on May 11.

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