State orders Checkmate to shut down loan program
By VANESSA HO
SEATTLEPI.COM STAFF
Washington state regulators have ordered payday lending giant Checkmate to drop its new "gift card" program, saying it violates consumer-protection laws.
Checkmate's program - launched after the Legislature passed new payday lending laws last year - lets consumers borrow pre-loaded, $100 gift cards for such retailers as Safeway, Fred Meyer and Wal-Mart. Consumers have 15 to 45 days to pay back the loan, which carries an annual percentage rate of up to 391 percent.
The state's Department of Financial Institutions say the gift cards appear to be an attempt to skirt the statute. The law prohibits more than eight payday loans per person per year. It also bans a lender from giving money to someone who owes more than $700 - or 30 percent in monthly income - in payday debt.
The state said Checkmate had specifically marketed the cards to people who had reached their eight-loan limit, and that 60 percent of loans at one branch in Tumwater had been made to people who had maxed out their limit, according to DFI's cease-and-desist order.
A third of the Tumwater borrowers were already in default from loans from a payday competitor, the state said.
The problem is that the cards carry hefty fees similar to loans and are easily converted into cash, said Deb Bortner, director of DFI's division of consumer services. But they're not being regulated under the payday loan laws.
"(They) look a lot like a payday loan, and we believe and allege that the type of loan they are making is an attempt to evade that statute," Bortner told KOMO Friday.
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