More Interlocks to Green Dot

Green Dot is a closely held company with a set of principal shareholders that have contacts throughout the narrow universe of the prepaid debit card market. Green Dot has filed an application to buy Bonneville Bank, a small one-branch state-chartered bank in Utah. The Federal Reserve is currently reviewing that application. There has been some discussion about the role of Wal-Mart in this transaction. Will this allow Wal-Mart to effectively own a bank? That is a valid question, but I believe that there is another pressing issue that needs to be resolved.

I think that this transaction could give new vitality to the payday lending industry. By giving the owners of Green Dot the rights to an unsullied bank charter, the Fed could empower high-cost subprime lenders to dramatically increase the scope of their business. This transaction involves a small dollar bank, but it carries the potential to impact millions of households.

The unbanked and underbanked market is vast. Some estimates put the size of this group at as large as 110 million, depending upon how it is defined. Many of these households are unbanked because they haven’t honored their commitments. However, others are underbanked simply because they don’t have a substantial credit history. Thin file and no-file consumers have a hard time getting a bank account, let alone a credit card, even though they have never defaulted on a loan. It is unfortunate that retail banks are abandoning these consumers. Yesterday, Bank of America announced that they are putting an end to the practice of free checking accounts. Unable to extract overdraft fees, they are simply moving away from serving consumers that aren’t willing to pay a high monthly fee or that can bring them multiple “relationships.”

Where will they go? The answer is that they will fall prey to a small group of financial institutions that are run by an even smaller set of venture capital funds and bankers.

Below is a list submitted by Green Dot to the SEC, describing holdings of Directors, Executive Officers, and beneficial shareholders.

Shareholders in Green Dot, filed to the SEC on June 2, 2010. Note that almost 70 percent of Green Dot's shares are held by this short list of investors.

Wal-Mart owns 100 percent of Class A shares. The Class B shares are held by a small group of individuals. Note: these are the holdings as of March 2010, prior to the new shares issued following the recent Green Dot IPO.

The ownership structure at Green Dot is unique in that so many of its shares are held by just a few people. Almost 44 percent are held by three venture capital firms. The CEO owns 13 percent of the shares.

Yesterday, I talked about some of the interconnects between a few of these board members to the payday loan industry. Michael J. Moritz has ties to payday lending.  Mr. Moritz, as a partner in Sequoia Capital, directs multiple investments to companies that provide payday loans (PayDayOne, ThinkCash, Elastic, and Month End Money.)

There are also a strong set of ties between this board and the leadership of some of their competitors in the prepaid card space. Connections can easily be drawn between W. Thomas Smith, for instance, and the bank that has issued Green Dot-branded cards. Smith is a partner in TTP Fund, LLC.  W. Thomas Smith (Green Dot Director) is on the board of MicroBilt, Green Dot,and E-Duction.

TTP Fund is managed by Total Technology Partners. According to the Atlanta Business Journal (May 2004), the latter is owned by Gardiner W. Garrard III (1/3rd of shares) and Garrard and Jordan Investments LLC (another third). TTP Fund operates on fund mostly provided from Synovus Bank. Gardiner W. Garrard III’s father, Gardiner W. Garrard, Jr., is the owner of the Jordan Company (and through that firm, Garrard and Jordan Investments LLC) and a board member of Synovus Bank.

Seeing the name “Synovus Bank” pop up in the middle of the Green Dot board makes me take notice. Columbus Bank & Trust (CB&T), a small bank owned by Synovus, has been the issuer for many of Green Dot’s cards. CB&T has a long relationship with CompuCredit. CB&T has been the issuer for some of CompuCredit’s own cards. Those include the Aspire Visa, the Majestic Visa, and….When the FTC indicted CompuCredit for violations of the Fair Debt Collections Act, it included Columbus Bank & Trust in that action.

The Aspire Card was one example of what became known as “fee-harvester” cards.  CompuCredit’s Aspire Card should give anyone a good idea of how CompuCredit “helps” people access credit. The Aspire Card was a prepaid debit card with a $300 limit.  Indeed, $300 was the amount that a consumer loaded on to the card. However, the card came with a lot of fees. So many, in fact, that the ultimate spending power of a $300 Aspire Card was just $115. Columbus Bank & Trust, First Bank of Delaware, and CompuCredit each came to separate settlements with the FDIC in 2008. These cards were one of the issues that provoked the initial suit.

Synovus is a majority owner of Total Technology Ventures, a venture capital fund.  The Atlanta Business Journal says that Synovus has about 60 percent of this fund, and that another 30 percent of TTV is held by different instruments of the Garrard family.

TTV’s most recent acquisition, through its MicroBilt holding, is PRBC. PRBC (Pay Rent – Build Credit), if you are not familiar, is an alternative credit reporting service. It aims to help thin file or unbanked consumers to develop a credit history. The Rush Card has a credit builder feature. For about $10 a month, consumers can add the credit builder to their Rush Card. In turn, Rush will report payments to PRBC.

Are We Doomed to Repeat the Past?

The problem is that even a settlement doesn’t keep these guys from coming back. Think Cash, the “emergency loan” funded by Sequoia Capital and Michael Moritz, is now funneling small dollar loans to First Bank of Delaware.  First Bank offers the Simply Debit card, and they also offer installment loans bearing an APR of 214 percent. Columbus Bank & Trust might have been forced to settle in 2008, but now some of those individuals are investors and board members of a company that is about to buy a Utah-chartered bank. CompuCredit paid more than $100 million to settle with the FDIC.