Regulators in Washington State busted Checkmania, the company that operates Checkmate payday loan stores, for using gift cards to do an end-run around a new law that limits loans with high interest rates.
Under Checkmate’s program, consumers could “borrow” gift cards good for $100 at retailers including Safeway and Wal-Mart. They had 15 to 45 days to repay the loans, at annual interest rates of up to 381%, according to a press release by the state’s Department of Financial Institutions.
The cards were designed specifically to get around a new state law that bars consumers from receiving more than eight payday loans a year. The law passed last year.
“Ever since, companies within the industry have attempted to evade these limitations by structuring loans to appear as if they were not payday loans,” Deb Bortner, director of the department, said in its press release. “Of the 43 loans made to borrowers at one branch, almost 90 percent exceeded the statutory limitations passed by the Legislature.”
The department issued a cease and desist order to force Checkmate to discontinue the debit card loans immediately.