NAPLES, Fla. — According to a consent order issued by the Texas Department of Banking on Monday, SMART Payment Plan must inform its Texas customers by April 4 that it will no longer be providing services in the state. The agency charged the biweekly payment service provider with operating without the proper state license, resulting in a $130,000 penalty late last year.
The Texas Department of Banking’s director of Special Audits, Russell Reese, told F&I and Showroom that the agency first became aware of SMART Payment Plan’s lack of the necessary money transmission license when it was contacted by an out-of-state regulator. In October 2014, it issued two consent orders requiring SMART Payment Plan, which has processed more than $254 million worth of unlicensed money transmissions in the state since 2009, to pay a penalty and not contract with or solicit any new Texas customers while the regulator reviewed its application for a license.
“Unfortunately, these types of money transmitters' business models are more of a high risk than your normal [models] because they do take funds and hold them for a period of time,” Reese explained. “With your normal money transmitters like Western Union, you take a $100, you send it to Mexico, and the transaction is completed pretty quickly.”
Under SMART Payment Plan’s business model, the company debits small payments from a customer’s account to match their pay days, and then sends that money to pay off bills like auto loans faster.
“It can be done properly, it can be done legally, but there is more of a risk related to this business model,” Reese added.
After initially applying for the money transmission license in October 2014, SMART Payment Plan withdrew its application on March 20, 2015. It can reapply for the license in 12 months — but not before it winds down its Texas business in accordance with the timeline set forth in the March 23 consent order. Within 120 days, SMART Payment Plan must return all funds to customers and stop engaging in business with customers currently under contract.
Prior to achieving its license in Wisconsin, SMART Payment Plan received six consent orders for failing to comply with state law, and was fined a total of $86,800.
“We are committed to compliance and love serving our clients, dealers and agents with the highest degree of care and fiduciary responsibility. We will now help our existing Texas clients find an alternative solution to continue automating their loan payments,” SMART Payment Plan CEO David Engelman told F&I and Showroom. “We look forward to the opportunity to reapply in Texas in 12 months.”
The executive also added that he expects the company’s new compliance initiatives will strengthen its future application with the Texas Department of Banking and in other states. “We recently hired a chief compliance officer and implemented many compliance initiatives which make SMART Payment Plan the most compliant payment service in the country,” he said. “We have applications pending or licenses in all other states in which we do business and look forward to continuing to serve our clients, dealers and agents across the country with exceptional service and reliable, secure, on-time payments."