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Unsolicited, Live Check-Credit

posted by Adam Levitin

The Washington Post has an interesting story about consumer installment lender Mariner Finance.  Three brief observations.

First, Mariner has found an interesting regulatory loophole.  The Truth in Lending Act prohibits the issuance of "live," unsolicited credit cards.  That provision, however, only applies to devices that can be used for multiple extensions of credit, not single use items like a check. So Mariner can mail out live checks to consumers (it presumably prescreens a population to target), without running afoul of the federal prohibition on mailing live, unsolicited credit cards.  That's a  creative way of reaching customers without having an extensive and expensive brick-and-mortar presence.  It also avoids some of the adverse selection problems of internet-based lending.

Second, there is no federal preemption obstacle to states prohibiting the issuance of live, unsolicited checks used to create a credit balance. Mariner seems to be the only major firm doing this, and it doesn't have any preemption argument I can see.  

Third, no one should be shocked that large financial institutions provide the money behind Mariner. Large banks don't do small dollar lending themselves; there are too many regulatory and repetitional issues, but they will provide the financing for small dollar lenders, whether by providing lines of credit or by making equity investments in them. And this has political consequences:  the lobby opposing the regulation of small dollar lenders isn't just finance companies, but also the large financial institutions that are funding them.  Consider how that might affect efforts to close the unsolicited live check loophole on either the federal or state level. 

 

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