Washington state regulators, citing consumer protection law violations, have ordered payday lending giant Checkmate to drop its new gift card program.
Launched after the state legislature passed new payday lending laws last year, the program allows consumers to borrow pre-loaded, $100 gift cards for various retailers - including Safeway and Wal-Mart. Consumers are given 15 to 45 days to pay back the loan, at an annual percentage rate of up to 391%.
But the gift cards appear to be an effort to skirt the statute, reports Washington's Department of Financial Institutions. That law prohibits more than eight payday loans per person per year. It further bans a lender from giving money to someone who owes more than $700 - or 30% in monthly income - in payday debt.
Checkmate had marketed the gift cards to consumers who had reached their eight-loan limit. Sixty percent of loans at one branch had been made to consumers who had maxed out their limit, according to DFI's cease-and-desist order, and approximately 33% of borrowers at that branch already were in default from loans from a payday competitor.
