Wednesday, August 16, 2006

Need cash groceries, but can't pay right now?

According to the Charlotte Observer, the Bi-Lo supermarket chain is rolling out a new store credit card that lets customers with a checking account and photo identification buy now and pay later. Advocates for lower-income consumers worry, however, that the program is too similar to predatory payday loans.

Officials with the company say BonusPay, introduced in all South Carolina Bi-Lo stores last week, is a way to help cash-strapped shoppers avoid fees associated with revolving credit or bounced checks. Bi-Lo operates more than 300 supermarkets in the Carolinas, Georgia, Tennessee, Alabama and Florida.

With BonusPay, shoppers are given a credit line of $50-200 and are charged $3-5 each time they use the card at the checkout, plus $4.99 for each month they use the card. The balance and fees are deducted from their checking account when they get their paychecks.

Like faxless payday loans, no credit check is required, nor is proof of income. In comparison, fees for bounced checks range from $30-70, depending on financial institution.

"Paying a fee like this is a whole lot cheaper than bouncing a check," said Avery Price, store manager for the Bi-Lo on Cherry Road in Rock Hill.

He said the grocery store giant plans to introduce the program to N.C. stores in a few weeks. Customers can register from home or use the store's courtesy phone for instant approval. Price said he thought the fees were "very reasonable" for people on a tight budget.

"When you weigh it against having to carry a balance on a credit card or writing a check and having it returned, it's a lot less costly," he said.

Bi-Lo spokeswoman Joyce Smart said the company hopes to develop customer loyalty with the program, as Bi-Lo is believed to be the only grocery store chain to offer the short-term personal loans.

But advocates for the poor said the program is too costly, especially those who have trouble making ends meet as it is. They said BonusPay works like payday advance loans, which a growing number of states, including North Carolina, have cracked down on because they can trap people in a financial hole that's tough to escape.

With a payday loan, customers borrow money they must pay back after their next paycheck, plus a hefty fee. While North Carolina effectively banned payday cash loans by capping interest rates on all short-term loans, the businesses continue to thrive in South Carolina.

Bi-Lo said BonusPay is nothing like payday advance lending. The chain says it is providing a service that benefits people who may not have another way to pay for food.

But the costs add up.

• A person who makes one $25 purchase in a month would pay $32.99.
• A $50 purchase could end up costing $59.99.
• In some cases, the money would have to be paid back in as little as 7 days.
• If shoppers don't have enough money to repay the entire balance, they would be charged a bounced-check fee.

If it walks and talks like a payday loan…

The fees for the BonusPay card, however, do not go to Bi-Lo. They go to Purpose Solutions and the First Bank of Delaware, which run the program.

Officials with the companies did not return repeated calls seeking comment Monday. Purpose Solutions is a subsidiary of Atlanta-based CompuCredit Corp., which offers a variety of financial products to borrowers with poor credit.

"This is potentially moving the payday advance transaction from the payday loan shop to the grocery store. This is very expensive credit. Our concern would be that if people are desperate for food, you run the risk of taking advantage of folks," said Al Ripley, of the N.C. Justice Center in Raleigh.

Bi-Lo is competing in a fiercer market since the entry of Wal-Mart, which has captured a growing share of low-income shoppers to become the nation's largest grocer. Bi-Lo has been particularly vulnerable because the company has relied heavily on lower-income customers — the very consumers who might find a credit program appealing.

"Bi-Lo has … always chased a lower-priced strategy, which has put them right in the jaws of Wal-Mart. This is a unique service to try to distinguish themselves," said Britt Beemer, chairman and founder of Charleston-based America's Research Group.

Several customers interviewed at a Rock Hill Bi-Lo said they were unaware of the BonusPay program. Rock Hill resident Linn Craycraft said she was wary of the card because she is on a fixed income and her expenses vary too much.

"It makes it too easy to get in deep. You see a couple of T-bones and start racking up charges," Craycraft said.

This entry was posted on Wednesday, August 16th, 2006 at 6:41 am and is filed under South Carolina, North Carolina.