Wednesday, Sept. 17, 1997 | 10:44 a.m.
The checks come in the mail from banks offering easy money. Many consumers have even cashed them.
But endorsing these checks not only activates an instant bankroll, it also can lock an unsuspecting consumer into a high-interest loan.
That's the contention of Sen. Richard Bryan, D-Nev., who has introduced legislation that would ban the mailing of unsolicited loan checks without a consumer first submitting an application or requesting an extension of credit.
"What may at first appear to be pennies from heaven is in reality a loan backed by exorbitant interest rates and punitive loan terms, but these details are only found in the fine print," Bryan said in a news release announcing the introduction of the bill. "While only a few banks are engaged in this practice, it is a growing practice and needs to be stopped before it is allowed to get out of hand."
But the financial services industry isn't quietly saying goodbye to the marketing technique that has garnered at least one company more than $1 billion in new loans in 18 months.
The American Financial Services Association, a Washington-based trade group, today announced a five-point list of voluntary standards it is recommending to its 400 members.
The new standards include:
* New instructions to void and destroy checks if they aren't going to be used.
* A disclosure statement clearly defining the solicitation as a loan.
* Incorporation of opt-out provisions of the Fair Credit Reporting Act.
* The mailing of solicitations in envelopes that don't indicate a check is inside.
* Removal of liability to the intended recipient if a live-check loan is fraudulently cashed or stolen.
Bryan's Senate version of the Unsolicited Loan Consumer Protection Act was introduced last week and mirrors a House bill drawn by Reps. Maurice Hinchey, D-N.Y., and Henry Gonzalez, D-Texas, in June.
Hinchey and Bryan said their bills are patterned after a bill signed into law in 1970 by President Nixon, outlawing the practice of sending unsolicited credit cards in the mail.
Bryan offered a Las Vegas company's solicitation as an example of what he wants to ban.
Bryan cited a $1,599.99 loan promotion from Associates Financial Services Company of Nevada Inc., 5085 W. Sahara Ave. Suite 130.
"It's true," says the letter accompanying the check, signed by manager Randy Asbell. "You're holding a real check for a $1,599.99 loan. If you want the loan, all you have to do is take the check to your bank and cash or deposit it. That's it!"
Later in the letter, it notes the availability of funds may be affected by a bank's internal policies on cashing or depositing checks. A disclosure statement accompanying the check lists the interest rate at 27.62 percent, the annual percentage rate at 29.49 percent and a finance charge of $1,100.01. The payment schedule on the loan: 42 payments of $68.81, or $2,890.02 on a $1,600 loan.
Joe Stroop, a spokesman for the Dallas-based Associates First Capital, parent company of Associates Financial, said the company is adopting the standards established by the American Financial Services Association.
Hinchey said he introduced his bill after a constituent in his district in New York received a check in her name for $7,500 from Richmond, Va.-based Signet Bank, a company with which she had never made contact.
The constituent, Debra Goldberg, and her husband, Victor, of Ithaca, N.Y., expressed their concerns about liability for the loan, which had an interest rate in excess of 20 percent. The Goldbergs also said they were concerned about a check with their name on it falling into the hands of a thief who could cash it and commit them to the loan.
Signet, a company that has made $1 billion in loans with the tactic, became the example for Hinchey's bill at a time when it was on the verge of being acquired by First Union Corp. Representatives from Signet and First Union said Tuesday they could not comment on unsolicited loan policies during a "quiet period" in place to prevent outside influence on the value of the company.
However, a Signet official commented to the Associated Press prior to the quiet period that the company believes there are enough safeguards in place to protect consumers.
Gaylon Layfield, president and chief executive officer of Signet, told the AP his company provides information with the checks that consumers need "to make an informed decision ... as well as all the disclosure required by the law.
"We think the consumer is well protected," Layfield said, because consumers are not liable if a check falls into the wrong hands.