DFS Discover Financial Services

By Robin Sidel 

Green Dot Corp., one of the nation's largest providers of prepaid debit cards, is moving into the credit-card business.

The Pasadena, Calif.-based company said it would start offering a secured credit card aimed at building credit profiles for consumers who either have no credit history or poor credit scores. A secured credit card, which is backed by a customer deposit that is used as collateral, is often a first step toward being eligible for a traditional credit card.

The move comes as all types of card issuers are increasingly targeting less creditworthy customers. Discover Financial Services also recently began offering a secured credit card.

Green Dot, which owns a bank, will issue the card under the Visa Inc. brand. Green Dot also offers a checking account, but a customer doesn't need the account to get the credit card.

The card will have an interest rate of 19.99% and an annual fee of $39. The company will offer credit lines of between $200 and $1,000.

Lewis Goodwin, president of Green Dot's bank unit, said the company had been considering a move into the credit space for some time. "I believe there is a pent-up demand among the customers we know," he said in an interview.

The addition of a secured credit card can help customers build a credit history. Green Dot will report the customer's payment performance to major credit bureaus, a move that can help the customer become eligible for a traditional credit card in the future.

The move by Green Dot is the latest evolution in the prepaid card industry, which has gone through a significant overhaul in the past few years after initially coming under fire from regulators and consumer advocates for high fees and a lack of transparency over those charges. Consumers can buy prepaid debit cards at millions of retail stores and use them to make purchases, pay bills, withdraw cash from an ATM and conduct other transactions that typically require plastic, such as a renting a car.

The prepaid card industry is now awaiting final rules from the Consumer Financial Protection Bureau that are expected to set standards about fee disclosures and other issues.

Write to Robin Sidel at robin.sidel@wsj.com

(END) Dow Jones Newswires

September 29, 2016 09:32 ET (13:32 GMT)

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