A coalition of consumer and community groups is urging regulators to crack down on a Florida bank that is issuing prepaid cards for payday lender CheckSmart.
In a letter to the Office of the Comptroller of the Currency, more than two dozen organizations asked that the regulator stop Urban Trust Bank of Lake Mary, Fla., from issuing prepaid cards sold by CheckSmart in Arizona, Ohio and other states where the company cannot make loans directly to consumers, the National Consumer Law Center said Thursday. CheckSmart has been using the prepaid cards to make loans at higher interest rates than laws allow, the consumer group said.
Payday lenders, which have faced allegations of targeting the most vulnerable with deceptive practices and high interest rates, have been banned in at least 10 states and the District of Columbia. Regulators also have mostly forced banks out of the practice of providing payday loans.
CheckSmart is owned by Community Choice Financial, which has its initial public offering scheduled for Tuesday. Its card program is managed by Insight, which CheckSmart partly owns.
CheckSmart’s Insight Cards have two different loan features. Consumers who have public benefits or wages directly deposited on the cards can enroll in overdraft protection for $15 per $100 worth of overdraft. They also can take an advance on 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, according to the National Consumer Law Center.
Arizona capped its rate at 36% in 2010 while voters in Ohio approved a 28% rate cap in 2008.
"Banks simply should not be in the business of facilitating payday lending, which just leads cash-strapped consumers into a cycle of debt," Jean Ann Fox, director of financial services at the Consumer Federation of America, said in a news release.