By Patti Murphy
InsideMicrofinance.com
Editor's Note: These articles were first published by InsideMicrofinance.com on April 26 and May 9, 2012. Reprinted with permission. All rights reserved; © Patti Murphy.
Payday lender postpones IPO
#dcf_The parent company of payday lender CheckSmart Inc. postponed a scheduled initial public offering (IPO) of stock that had been set for May 8, 2012. According to a report in the Columbus Business Journal, Dublin, Ohio-based Community Choice Financial Inc. decided to delay the IPO due to a "combination of a number of external forces."
The company failed to mention it was being hounded by a coalition of more than two dozen state and national civil rights, community and consumer groups over a payday loan product it markets that circumvents state usury laws by loading loan funds onto prepaid debit cards issued through a federally chartered bank.
Last month, the groups petitioned the Office of the Comptroller of the Currency, asking the federal bank regulator to help stop CheckSmart from skirting these laws by ordering Florida-based Urban Trust Bank to stop issuing the company's Insight Visa prepaid debit cards. Because it operates out of the Sunshine State, which reportedly caps interest on payday loans at an annual percentage rate (APR) of 390 percent, Urban Trust doesn't feel it has to abide by other states' usury ceilings, the groups complained.
According to the Southwest Center for Economic Integrity, CheckSmart charges what amounts to a 390 percent APR for payday loans in Arizona, even though state law caps the APR on payday loans at 36 percent.
"We urge the OCC to crack down on Urban Trust Bank for facilitating this deceit, which is an abuse of the national bank charter," said Lauren Saunders, Managing Attorney at the National Consumer Law Center. "Prepaid cards and payday loans just don't mix. Prepaid cards should be safe alternatives to bank accounts, not vehicles for evading state law with predatory loans that trap people, often those with the least means, in a spiral of debt."
CheckSmart also disburses payday loans via Insight Visa cards in Ohio, where loan rates are reportedly capped at 28 percent.
CheckSmart's Insight prepaid cards have two loan features. Customers who have wages or benefits deposited onto the cards can enroll in an overdraft protection program that costs $15 for each $100 in overdrafts, or they can take an advance on their next direct deposit at a rate of $14 per $100 loaned plus 35.9 percent interest. Either way, loans are automatically deducted from the customer's next deposit, resulting in APRs of 390 percent to 401 percent for two-week loans, the group complained in its letter to the OCC.
Half the world is unbanked
#dcf_Half the world is unbanked. That's the key takeaway from a new report out of the World Bank, Measuring Financial Inclusion: The Global Findex Database. While much has been written about the unbanked, and data collection efforts have been undertaken in different countries, this is the first-ever attempt at sizing the global unbanked population.
The report provides a comprehensive analysis of the situation and breaks down data by region and socioeconomic factors. These and other rich data features ensure this database will become a critical tool for benchmarking financial inclusion efforts. Not surprisingly, the data point to wide variations domestically and internationally.
Key findings include that accountholders are by far the majority in high-income economies (89 percent of adults) and scarce in developing economies, where just 41 percent of adults have bank accounts. The data also point to a "persistent gender gap" within developing countries where, on average, 46 percent of men have bank accounts compared with just 37 percent of women. In addition, 50 percent of adults worldwide have accounts at formal financial institutions; among those who don't have accounts, 65 percent said they didn't have enough money to use a bank account.
Measuring Financial Inclusion: The Global Findex Database suggests changes that could help move more adults to formal financial institutions. For example, the report stated, "Worldwide, reducing withdrawal charges and balance fees could make formal accounts more attractive to 500 million adults who are without one." The report also noted "the recent success of mobile money in Sub-Saharan Africa shows that innovations can bring about dramatic changes in how people engage in financial transactions."
Patti Murphy can be reached at patti@greensheet.com.
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