Green Dot Corp., which began selling credit cards in November at retail checkout counters to anyone who could verify their identifies, regardless of creditworthiness, will expand the program next month to more locations.
Steven Streit, Green Dot's president and chief executive, said that the results from the pilot test at 200 Rite Aid Corp. stores are "within expectations," and that his Monrovia, Calif., company would start selling the Green Dot Visa Gold Card packages at the rest of Rite Aid's more than 5,000 locations.
Green Dot will re-evaluate the program early next year and decide whether to expand it to other retailers, Mr. Streit said.
Consumers can get the card regardless of their credit history by buying a package for $89.95. There is an annual fee of $70 and a monthly fee of $4.95 for the card, which has a $200 credit limit. Mr. Streit said this week that his company will waive the annual fee after the first year and raise the limit to $300 for consumers who prove to be good credits.
Green Dot or its bank partners would offer such cardholders more competitive products down the road, he said. "We run the risk that our customer could be picked up by other issuers over time, because we report to the bureaus. It's certainly our goal to have products that will meet their emerging credit needs. While that won't be applicable in the first few months, if these folks become super performers, we're not just going to sit back. … We're going to reward them with better offers."
About a third of the cardholders have little or no credit history, and the rest have low FICO scores, he said.
Jennifer Tescher, the director of ShoreBank Corp.'s Center for Financial Services Innovation, said some people should not be extended credit, because they may not be able to repay it.
"Making credit more easily attainable for consumers who may not be able to get it otherwise is interesting, but at what cost?" she said. "I think it makes the consumer worse off; perhaps you solve some short-term immediate emergency, but you're certainly not helping them in the long term. … For some, it's almost like feeding someone's gambling situation."
Green Dot also plans to add an educational brochure to the package advising consumers to pay on time and to pay the full balance to avoid interest charges, or at least to pay more than the minimum.
"Avoid large impulse purchases. Don't use cash advances to cover normal daily expenses," says the brochure, which Mr. Streit said Visa U.S.A. Inc. helped Green Dot prepare.
First National Bank of Fort Pierre, S.D., a $531 billion-asset unit of Capitol Bancorp. Inc. in Britton, issues the cards and shares the risks and profits with Green Dot. The card carries an interest rate of 11.9%. (Other banks issue Green Dot's prepaid products.)
John R. Ulzheimer, the president of educational services for the lead generation company Credit.com Inc., said the Green Dot program provides an avenue for people who have no other way to build a credit history.
Mr. Ulzheimer, who has worked at Fair Isaac Corp. and Equifax Inc., said issuers that target high-risk consumers could begin marketing to Green Dot's cardholders who had no credit history before but earned good marks with their first card. But because 30% of credit scoring depends on how close cardholders get to their credit limit, Green Dot's credit cardholders' scores would shift radically and frequently, he said. "One month their score is very good, and the next it's very bad. That's why issuers will look them with a more discriminating eye."
The card can also speed credit repair, Mr. Ulzheimer said, but "it's a scary product because, man, it sure is expensive."
