S&P puts CheckSmart on watch

Standard & Poor's said it placed CheckSmart Financial Co.'s B long-term counterparty credit rating, BB- first-lien bank facility and CCC+ second-lien bank facility on CreditWatch with negative implications following the Ohio House of Representatives' passage of Bill 545 on April 30.

In the agency's view, if this bill is passed by the State Senate and signed by the governor, it would severely restrict payday lending in Ohio. CheckSmart generates 80% of its revenues from payday lending, and more than 50% of outstanding payday loans were to Ohio consumers at year-end 2007, according to S&P.

Ohio House Bill 545 would cap the allowable rate of interest on payday loans at 28% (quoted on an APR equivalent basis), which translates to less than $2.50 per $100 borrowed, significantly below the $12.00 to $14.00 that the agency believes industry participants would have to charge to break even. In addition, a consumer could not borrow more than $500 or 25% of his monthly income, loan terms would be extended to 31 days from the customary two weeks and consumers would be limited to four payday loans per year.

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