Bill Seeks to Ban Mailing of Live Checks

A bill seeking to prevent direct mailers from using unsolicited loan checks was referred to a House subcommittee last month, but some mailers and industry watchers said the effort will probably not gain any momentum this year.

H.R. 2351, the Unsolicited Loan Check Consumer Protection Act of 1999, calls for the outlawing of these so-called live checks, which are mailed directly to consumers who can then deposit them and use them as instant loans.

Committee on Banking and Financial Services spokeswoman Amy Simmons said that the bill's sponsor, Rep. John LaFalce (D-NY), has received several letters from his constituents complaining about the practice.

“The problem is with people who receive these checks that have no chance of being able to repay the loans,” she said, citing instances in which people have been sent checks for values that far exceed their annual incomes at extraordinarily high interest rates. Some reports cited live-check mailings that carry interest rates as high as 25 percent.

Even those direct marketers who claim to conduct the live-check mailings responsibly said the device is misused in the industry.

“In the broad category out there, there are mass mailings that use large lists of generally unqualified leads,” admitted Jim Schepker, a spokesman for Fleet Financial Group Inc., Boston. “But in our case the individuals have gone through screenings and have outstanding credit histories and are the kind of customers we'd like to serve.”

Schepker said Fleet has been conducting live-check mailings since 1996, and sends out two or three such solicitations per year, ranging from drops of several hundred thousand to about 1 million.

The company experiments with different interest-rate offers, ranging from 12.9 percent to 17.9 percent, and issues the checks in four different denominations: $3,000, $5,000, $7,500 and $10,000.

Schepker would not disclose the rate of acceptance of the products, but said “it's been successful enough for us to continue with the program.”

He said that at Fleet the delinquency rate has been less than the delinquency rate for traditional loan products.

“We're very careful practitioners,” he said. “The success of the program, the appeal to consumers, the value to those consumers and the longevity of the program attest to the fact that it's a working product.”

Other companies that reportedly have used live checks as marketing tools include Beneficial Finance and Signet Banking Corp.

Lynne Strang, director of communications for the American Financial Services Association, Washington, DC, said she has not heard about any incidents of abuse of the live checks by any of the 360 active members of the AFSA. The group assembled a list of standards for the use of live checks two years ago, and she said she believes that the member banks are complying with the guidelines.

“There's been no evidence that there's been any increase in problems in this area,” she said. “For consumers who use them, they seem to like the convenience. Like with any product, we encourage people to read the terms and understand what it is, and then make the best decision based on their own personal circumstances.”

Legislators, however, said that some lenders are mailing checks to the poor and the elderly, to whom the idea of an instant loan might be too much temptation or too confusing.

The bill was introduced as an amendment to the Truth in Lending Act. It was referred to the Referred to the Subcommittee on Financial Institutions and Consumer Credit last month.

Richard Barton, senior vice president of government relations at the Direct Marketing Association, said the DMA has not yet taken a position on the bill. New legislation such as this will not likely be considered this year, he added.

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