FEDERAL THRIFTS NOT FOR RENT
Honorable James E. Gilleran
Office of Thrift Supervision
1700 G Street, NW
Washington, DC 20552
Dear Director Gilleran:
We request that the Office of Thrift Supervision take immediate action to stop First Place Bank from renting its charter to allow Check'n Go, a payday loan chain, to evade Texas small loan laws. First Place Bank is a federally chartered thrift located in Warren, Ohio. First Place Bank has stated in its 10K filing that it has $1 million in payday loan operations with Check'n Go in Texas and plans to expand payday activities to $10 million with expansion into other states. Texas prohibits the type of abusive loans Check'n Go and First Place Bank provide.
The only reason for a payday lender to partner with a bank to make payday loans is to use the bank's right to export home state interest rates and to preempt some state consumer protections. We believe that this is a blatant abuse of federal charters. As the Office of the Comptroller of the Currency and the Office of Thrift Supervision have found, payday lending exposes federally-insured banks to unacceptable safety and soundness risks, undermines consumer protections, and carries unacceptable reputational risks. We ask that you issue a cease and desist order to First Place Bank for any payday lending activity.
Payday loans are small cash loans that are based on a personal post dated check and cost triple-digit interest rates. These loans are due in full on the borrower's next payday, typically two weeks, and trap vulnerable consumers in perpetual debt. Payday lenders encourage cash-strapped bank account holders to write checks without funds on deposit and then use those checks to coerce repeat transactions or collections.
Your agency has been a leader in preventing this abuse of bank powers. The Office of Thrift Supervision joined the Comptroller of the Currency in issuing a Memorandum for Chief Executive Officers November 27, 2000, to warn thrifts about safety and soundness, compliance, and consumer protection concerns regarding payday lending. The Office of Thrift Supervision's former Chairman reported to Consumer Federation of America and the National Consumer Law Center that as of June 2001 "we are not aware of any thrifts that offer payday loans or provide funding to third party providers." The OTS had earlier given Crusader Bank, a Philadelphia thrift, a "needs to improve" CRA rating for its rent-a-bank arrangement with a payday lender.
The Office of the Comptroller of the Currency has taken important steps to prevent national banks from misusing their charters, as well. During 2002, the Office of Comptroller of the Currency ordered two federally-chartered banks (Eagle National Bank and Goleta National Bank) to halt their payday loan arrangements with third-party companies (Dollar Financial Group and ACE Cash Express, respectively) and filed charges against Peoples National Bank of Paris, TX, citing safety and soundness concerns. Only one national bank that rents its charter to a payday lender has yet to be publicly addressed by the OCC (First National Bank of Brookings, SD). About a half dozen state-chartered, FDIC-insured banks are also involved in payday loan arrangements.
First Place Bank reported to the Securities and Exchange Commission that in August 2002 the bank began offering "deferred presentment consumer loans" in the state of Texas through an agency relationship established with CNG Financial Corporation, Inc. By September, First Place Bank had made $1 million of payday loans with Check'n Go and expected the amount to increase to $10 million by the end of the fiscal year. The bank plans to expand into other states in the future, far beyond the thrift's market area in Ohio.
As Check'n Go's partner for payday loans provided in Texas, First Place Bank replaces Brickyard Bank, an Illinois state bank that recently exited the payday loan business following a cease and desist order issued by the Federal Deposit Insurance Corporation and the Illinois regulator. The order came after the Community Reinvestment Association of North Carolina and many other groups launched a public campaign of protests, letter-writing, and advertisements in the local newspaper in Brickyard's service area.
It appears that First Place Bank is merely renting its charter to a third-party lender. According to the bank's SEC filing, CNG provides operational, administrative, and accounting support for the loans which are originated through CNG offices with no investment in facilities or overhead from First Place Bank. Questions about credit denial go to Check'n Go in Mason, Ohio, not to the bank. Although the loan contract claims that the bank makes credit decisions from Ohio, the loan customers only deal with Check'n Go outlets in Texas.
As a result of a Freedom of Information Act request to the Texas Credit Commissioner, we received a copy of the payday loan documents being used in Texas by First Place Bank and Check'n Go. The Texas payday loans cost $20 to borrow $100, or 521.43% APR for a two-week loan based on holding the borrower's personal check for future deposit. A $25 fee is added for checks returned for insufficient balance. The maximum loan is $500.
Loans made by First Place Bank and Check'n Go far exceed the consumer protection limits set by the Texas Finance Commission in regulations adopted in 2000 (7 Tex. Admin. Code § 1.605 et seq.) Under the terms of Texas law and regulations, payday lenders can only loan up to $350 for terms of 7 to 31 days. Fees are capped at 48% APR plus a $10 monthly fee. A two-week $100 loan costs $11.87 or 309% APR, much less than the rates charged by First Place Bank/Check'n Go.
The only eligibility requirements are full-time or part-time employment with a minimum take-home pay of $500 per month, direct deposit if the borrower receives the minimum $500 monthly Social Security or retirement benefits, an active checking account, a functioning telephone, a driver's license or state ID, proof of income such as a pay stub or bank statement, and proof of current address. The only credit reporting agency used to screen applicants is Tele-Track which operates a sub-prime service to payday lenders. What is missing in these criteria is an evaluation of the borrower's ability to repay.
We urge you to take immediate steps to halt payday loan activities at First Place Bank and at any other thrift that might be tempted to put consumers and taxpayers at risk for the quick profits to be made in charging triple-digit interest rates to vulnerable consumers.
We request a meeting with you to discuss these concerns. Please contact Jean Ann Fox, Consumer Federation of America, at 757-867-7523 with any questions and to schedule a meeting. Thank you very much for your consideration to this matter.
ACORN (Association of Community Organizations for Reform Now)
American Council on Consumer Awareness, Inc. (AZ)
Alaska Public Interest Research Group
Arizona Consumers Council (AZ)
Center for Public Representation (WI)
City of Santa Fe, NM
Cleveland Works, Inc. (OH)
Coalition on Homelessness & Housing in Ohio (COHHIO)
Columbia Consumer Education Council (SC)
Community Action Committee of the Lehigh Valley (PA)
Community Legal Services (PA)
Community Reinvestment Association of North Carolina
Consumer Action (CA)
Consumer Federation of America
Dean Lovelace, Dayton City Commissioner (OH)
Delaware Community Reinvestment Action Council, Inc.
Democratic Process Center (AZ)
Detroit Alliance for Fair Banking (MI)
Dr. Regine L. Mitchell, Consumer Educator and Advocate (CA)
Eliot Shapleigh, Texas Senate, District 29, El Paso County (TX)
Empire State Consumer Association (NY)
Florida Legal Services (FL)
Illinois Public Interest Research Group (IL)
Jose Rodriguez, County Attorney, County of El Paso (TX)
Lange Clark, Attorney, Birmingham, AL
Lawyers' Committee for Civil Rights Under Law
Legal Aid Society of Dayton (OH)
Legal Aid Society of Greater Cincinnati (OH)
Massachusetts Consumers' Coalition
Memphis Area Community Reinvestment Organization (MACRO)
Michigan Consumer Federation
National Association Consumer Advocates
National Center on Poverty Law
National Community Reinvestment Coalition
National Congress for Community Economic Development
Neighborhood Economic Development Advocacy Project
North Carolina Fair Housing Center
North Carolina Justice & Community Development Center
North Carolina Public Interest Research Group
Northeast Ohio Legal Services (OH)
Office of Kentucky Legal Services Programs (KY)
Ohio Public Interest Research Group (OH)
Ohio State Legal Services Association (OH)
Pittsburgh Community Reinvestment Group (PA)
Project Change Fair Lending Center (NM)
Richard Tomlinson, Attorney, Houston, TX
Rural Opportunities, Inc.
Stewart Ransom Miller, Legal Aid Society of Texas (identification only)
Texas Legal Services Center (TX)
The Consumer Alliance (MD)
Unidos Para La Gente
U.S. Jesuit Conference
U. S. Public Interest Research Group
Victoria Wright, Bankruptcy Attorney (NC)
Virginia Poverty Law Center
Women's Business Development Center
Woodstock Institute (IL)
CC: The Honorable Richard Shelby
The Honorable Paul Sarbanes
Members of the Senate Committee on Banking, Housing and Urban Affairs
The Honorable Michael G. Oxley
The Honorable Barney Frank
Members of the House Committee on Financial Services
The Honorable Arlen Specter
The Honorable Blanche L. Lincoln
The Honorable Mary Landrieu
The Honorable Tim Ryan
The Honorable Bud Cramer
The Honorable Mike Thompson
The Honorable John Hawke
The Honorable Donald E. Powell
W. Terry Patrick, Chairman First Place Financial Corporation
Steven R. Lewis, President, CEO and Director; CEO First Place Bank
Jeffrey L. Francis, Executive Vice President, COO, Director, First Place Bank
David L. Mead, Chief Financial Officer, SVP and CFO, First Place Bank