CompuCredit Corp. elaborated on its reasons for considering a spinoff of its payday lending business, saying the unit has made the parent a pariah.
In a preliminary securities filing for the spinoff, the unit, Purpose Financial Holdings Inc., noted that payday lenders "have come under significantly heightened scrutiny from federal and state regulators, as well as community activists. As a result … many banks and potential investors have decided not to do business with companies that own [such] businesses, even where the business opportunity does not involve microloans" (CompuCredit's term for the product).
CompuCredit, whose main business is marketing credit cards, "has determined that its microloan businesses are impairing its ability to maintain and attract banking relationships … and obtain debt financing from financial institutions," the Dec. 4 filing said.
The proposed transaction would separate the companies by distributing Purpose stock to CompuCredit shareholders. The plan, first disclosed last month, still needs approval from CompuCredit's board.