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NEWS
RELEASE from Delaware Community Reinvestment Action Council (DCRAC)
and
Community Reinvestment Association of North Carolina
(CRA-NC)
For
Immediate Release
April
4, 2005
Contact:
Rashmi Rangan (DCRAC) at (302) 654-5024 or rashmi@dcrac.org
or Erik Ose (CRA-NC) at (919)
667-1557 x21 or action@cra-nc.org
First Bank Of Delaware Under Fire
Community Groups Blast First Bank of Delaware's Payday Lending
WILMINGTON,
DE
– Community groups inside and outside of
Delaware
have joined forces against First Bank of Delaware’s nationwide payday lending activities.
During March, they launched a letter-writing campaign that resulted
in more than 250 letters signed by community members in
Newcastle County.
The letters call on the
Federal Deposit Insurance Corporation (FDIC) to fail the Wilmington-based
bank on its current Community Reinvestment Act (CRA) exam.
First
enacted in 1977, CRA requires banks to provide banking services to low and
middle-income neighborhoods in their areas.
Banks are given regular exams to determine how well they are
following the law. First Bank
of Delaware is facing its first CRA exam under FDIC regulation since
withdrawing from the Federal Reserve System in September, 2003 to avoid
stricter oversight of its payday lending.
Payday
loans are short-term loans that borrowers take out against their next
paychecks. They have been
widely condemned for their sky-high interest rates, which can range from
400 to upwards of 1,000 percent. Studies
have documented payday lending’s addictive nature and destructive
effects on individuals and communities.
On
St. Patrick’s Day, the groups took their fight to Washington,
D.C., and met with FDIC officials. Among
the groups represented at the March 17 meeting were the Delaware Community
Reinvestment Action Council (DCRAC), the Community Reinvestment
Association of North Carolina (CRA-NC), the Consumer Federation of America
(CFA), and the National Community Reinvestment Coalition (NCRC).
The NCRC is a national coalition of community and housing advocacy
groups. Both the NCRC and CFA
have written on behalf of their members urging the FDIC to fail First Bank
of Delaware on its CRA exam.
“First
Bank is not living up to its responsibilities under the law,” said
Rashmi Rangan, executive director of DCRAC.
“They are not providing enough community investments or lending
to low income communities in Wilmington, even though their only two branches are located here.”
“It’s
a payday lender disguised as a bank,” said Peter Skillern, executive
director of CRA-NC. “First
Bank is headquartered in Wilmington, but most of their revenue comes from high-cost loans to borrowers in
other states through partnerships with payday lenders.”
First
Bank makes a high volume of payday loans through payday lender partners
including Dollar Financial Group in Arizona, California, and
Ohio, and Check’n Go in Texas
and Michigan. First Bank also partners
with Liberty Tax Service to offer high-fee Refund Anticipation Loans (RAL’s)
nationwide, and with Check’n Go to offer internet payday lending.
“Instead of reinvesting in the local community, First Bank
harms low-income borrowers around the country through its payday loans and
RAL’s,” said Rangan.
RAL’s
are similar to payday loans. They
involve charging taxpayers triple digit interest rates to temporarily loan
them the amount of their tax refunds.
Taxpayers pay, on average, $150 and up to get their money a week or
two faster than they could without the RAL.
Many are never told they are taking out a loan, or that these high
fees are avoidable.
In
a June 27, 2003 SEC filing, First Bank explained its decision to withdraw
from the Federal Reserve System by citing “substantially increased
Federal Reserve Bank (of Philadelphia) regulatory requirements for
participation in that line of business (payday lending).”
The FDIC is the only one of four federal banking regulators that
allows member banks to partner with payday lenders.
First Bank is one of only twelve banks in the country out of more
than 5,000 under FDIC regulation that still partner with payday lenders,
and one of only two banks involved with internet payday loans.
First
Bank of Delaware was spun off from its former parent company Republic
First Bancorp, headquartered in Philadelphia, in late 2004. The subsidiary
accounted for two-thirds of Republic’s profits in early 2004, but some
saw the move as an attempt by Republic First Bancorp to minimize risk.
Analyst John Reosti described the bank’s RAL’s and payday loans
as “two lines of business that regulators dislike, investors fear, and
acquirers avoid altogether.”
On
March 2, 2005, the FDIC issued revised payday lending guidelines that
tightened requirements for banks partnering with payday lenders.
In response, First Bank of Delaware
issued a statement on March 8 that noted, “We offer such payday loans
and will be affected by the revised guidelines.
(They) may have a material adverse effect on our business.
We are developing alternative loan products which are permissible
under these guidelines; however, it is not possible to predict whether the
development of such loan products will mitigate the adverse effects of the
revised guidelines.”
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About
the Delaware
Community Reinvestment Action Council (DCRAC)
The Delaware Community Reinvestment Action Council (DCRAC)’s mission
is to
ensure equal access to credit and capital for the underserved populations
and communities throughout Delaware
through Education, Outreach, Advocacy, and Legislation.
Through Education and Outreach we develop consumers
of financial services who can bank with and borrow from the mainstream
financial service providers. Through
Advocacy and Legislation, we strive to deepen the commitment to equal
access to credit and asset building opportunities for all Delawareans
among our financial systems, their regulators, our legislators, and the
larger Delaware
community.
DCRAC
www.dcrac.org
(302) 654-5024 601 N.
Church St,
Wilmington
DE
19801
About the
Community Reinvestment Association of North Carolina
(CRA-NC)
The Community Reinvestment
Association of North Carolina is
a nonprofit, nonpartisan research and advocacy organization whose
mission is to promote and protect community wealth.
We advocate for change in the lending practices of financial
institutions to promote wealth building for underserved communities and to
end predatory lending practices that strip wealth.
Committed to creative advocacy, CRA-NC uses research, education,
mobilization, media, litigation, regulatory challenges, legislative
advocacy and stockholder actions to initiate change.
CRA-NC
www.cra-nc.org
(919) 667-1557 114 W.
Parrish St,
Durham NC 27702
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