Prepaid card giant Green Dot plans to begin offering credit lines to its customers. It’s a move the company has tried before — but the new version likely foreshadows how new regulations will reshape the prepaid card industry, according to American Banker.
Green Dot CEO Steve Streit said in an earnings call with analysts on Thursday (Jan. 29) that he envisions Green Dot offering a secured credit card and an unsecured line of credit. The forthcoming product, which resembles a subprime credit card, will be marketed to Green Dot’s base of low- and moderate-income customers.
“FICO scores are not what they used to be. In our demographic, they were never good to begin with,” Streit said during the earnings call. “So if you’re a single mom with two kids, and you’re making $50,000 or $60,000 a year in household income, you’re not going to get a loan from any bank. We want to change that with a highly pro-consumer, well-priced product.”
Streit said Green Dot will underwrite the unsecured credit for its customers. He added that the two new lending products will require regulatory approval and oversight.
The Green Dot announcement comes after new federal regulations for the prepaid card industry were proposed by the Consumer Financial Protection Bureau in November, under which prepaid card issuers would have to verify a customer’s ability to repay before extending credit to the consumer. The new rules would also place limits on the interest and fees that could be charged.
Green Dot, which also offers online checking accounts for Wal-Mart customers and bought a tax-refund advance service last September, has tried low-end credit cards before. In 2006 the company began testing credit cards it sold at Rite Aid stores.
That card, which Green Dot eventually decided against offering widely, was sold to anyone who could verify his or her identify, regardless of creditworthiness. It carried an annual fee of $70, a monthly fee of $4.95, and had a $200 credit limit — and would be illegal today, because a 2010 law bars card issuers from charging annual and monthly fees that exceed 25 percent of the initial credit limit.