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Republic Bank Preparing Short-Term Credit Products: Possibly for Prepaid?

Adam Rust's picture

Posted November 1, 2012

A new filing from Republic Bank of Kentucky says that the company is not only going to go forward with plans to offer general purpose reloadable prepaid debit cards, but it also intends to roll out new short-term consumer credit products.

Republic will combine its prepaid, short-term credit, and tax services segments into one combined division known

as the Republic Processing Group.

It remains to be seen how these different business entities will interact with each other. In my initial post, I pointed out that the filing left the issue of the relationship between credit and prepaid unclear, a surprising omission given that prepaid credit has been a very big regulatory concern. Before I published, I had written emails and made calls to several Republic representatives but those entreaties were not returned.

The filing did suggest that the scale of both would be small. Republic says that Republic Credit Solutions ("RCS") and the Republic Payment Systems ("RPS") prepaid operations will be operated as pilots.

At 10:30 pm, a Republic executive did get back to me. "There are no plans to have RCS credit products marketed in conjunction with prepaid card companies," he wrote. "A  Prepaid customer, like any other existing customer or non-customer of the bank, could potentially apply for the product."

So the answer is "no" and also "yes."

It sounds as if Republic is envisioning a credit product  (which does not yet exist) that could piggy back on to any transaction account. So, "yes," the prepaid card is not loaded with credit. But at the same time, a consumer would be able to put proceeds from a RCS product on to a prepaid card. That actually means that the most important word in the executive's email might be "marketed." If it is up to the RPS prepaid customer to willy nilly discover that the same bank also make a credit product, then it is hard to see much cross over. If, on the other hand, the availability of the RCS credit product is made known those prepaid card holders, then this arrangement could be a vehicle for widespread distribution of short-term credit on prepaid cards.

I did not see the 10:34 pm email until 10:57 pm. I know - slack! But given that such an answer immediately creates new questions, I queried back at 11. I think that a lot more needs to be known.

Here are some of the selected highlights of the filing:

The company has combined its previous business segment Tax Refund Solutions ("TRS") with its relatively new prepaid card division, Republic Payment Solutions ("RPS"), and its newly formed consumer credit division, Republic Credit Solutions ("RCS"). Collectively, this combination is designated as RPG for the Company's business segment reporting. RPS is preparing to expand its client base into general purpose reloadable prepaid debit and payroll cards, while RCS is preparing to pilot short-term consumer credit products through multiple channels, including the internet and retail locations.

An IR representative clarified: "We are evaluating credit products that will be small dollar loans with maturities of thirty days or longer." He went further to say that the credit products would not be available in retail stores. This would seem to contradict the October 18th SEC filing.

Then, on page 16, Republic goes on to outline the corporate structure of their new business plan:

As of September 30th, 2012, the Company was divided into three distinct business operating segments: Traditional Banking, Mortgage Banking and Republic Processing Group ("RPG"). During 2012, the Company realigned the previously reported Tax Refund Solutions ("TRS") segment as a division of the newly formed RPG segment. Along with the TRS division, Republic Payment Solutions ("RPS") and Republic Credit Solutions ("RCS") were created to operate as divisions of the RPG segment.

Nationally, through Republic Bank & Trust Company ("RB&T"), RPG facilitates the receipt and payment of federal and state tax refund products under the TRS division. Nationally, through Republic Bank, the RPS divisions is preparing to become an issuing bank to offer general purpose reloadable prepaid debit, payroll, gift and incentive cards through third party program managers. Nationally, through RB&T, the RCS division is preparing to pilot short-term consumer credit products through multiple channels, including the internet and retail locations.