The General Accounting Office has issued a mostly upbeat report on unsolicited loan checks.

The study, requested by Sen. Lauch Faircloth, R-N.C., and released last week, was limited in scope. GAO interviewed just three lenders that had mailed loan checks. Only one, Boston-based Fleet Financial Group, supplied hard data on its operations.

But the consensus among lenders was positive: Loan checks, they said, can be "moderately profitable" without being excessively risky. Moreover, the lenders told GAO, loan checks give borrowers ready cash at rates competitive with credit cards.

The positive tone of the report contrasted with the loan product's controversial history, which is dominated by concerns about consumer debt. Some of those worries were echoed in the report's pages by the Consumer Federation of America. Last year a bill that would outlaw unsolicited loan checks was introduced in the Senate and the House.

Yet the GAO reported that in 1996 and 1997 Fleet mailed loan checks to 4.3 million preapproved people. Checks were mailed only to those who had no record of bankruptcy, foreclosure, tax liens, or wage garnishments, and who had good repayment histories. The average recipient had a credit score of 730, which meant there was about a one-in-125 chance he or she would default.

About 147,000 recipients signed and deposited the checks, Fleet reported. Loan amounts ranged from $3,000 to $10,000, with loan volume totaling $650 million. Repayment terms ranged from 48 to 60 months, and interest rates ranged from 12.9% to 15.9%.

Fleet told the GAO that its loss rates on the checks were lower than the national average for credit cards in 1996 and 1997 but that it expected these loss rates to be about equal in 1998.

Bank regulators and lenders agreed that fraud has not been a major problem. Fleet reported fewer than 70 confirmed cases of fraud, mostly instances in which someone who shared the recipient's home cashed the check. The Office of the Comptroller of the Currency told GAO that it had no reported cases of loan check fraud. Where fraud did occur, lenders did not hold the recipient possible, the OCC said.

New York-based Chase Manhattan Bank also told the GAO that its net interest margin on loan checks is higher than the margin on mortgages and the prepayment rate lower.

First Chicago NBD Corp., however, told the GAO that it stopped mailing loan checks after a pilot program generated significant losses.

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