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County Bank, a community bank based in Rehoboth Beach, is ending its payday loans. Bank President Harold Slatcher said the bank is pulling out of the controversial lending program because it is no longer profitable.
“The new 90-day rule that the FDIC imposed on the program in July makes the business unprofitable,” he said.
Payday loans are short-term, high-interest loans, designed for the consumer to pay back by his next paycheck. But borrowers often extend the loans incurring high interest – in some cases, with an annualized interest rate of several hundred percent.
The decision to end the loans comes after the Federal Deposit Insurance Agency (FDIC) issued a “cease and desist” order in May requiring the bank to improve its oversight, auditing and training procedures relating to its Short Term Loan Program, or payday lending. Consumer advocates, who say the lending service is akin to modern day loan-sharking, applaud the bank’s move.
But although payday loans were met with public protests and an order requiring better oversight, Slatcher said those factors did not contribute to his decision.
“That has nothing to do with it. The order did not even suggest that we get out of payday lending,” said Slatcher.
Rashmi Rangan, a representative with the Delaware Community Reinvestment Action Council Inc., is a consumer crusader of sorts who sought to prevent businesses from offering high-interest loan services. She said the bank’s choice to no longer offer the loans is not only beneficial for Delawareans, but for other consumers nationwide – many who have very little consumer protection.
In North Carolina, said Rangan, County Bank partnered with 171 payday lending outlets, and in 2003, consumer advocates from North Carolina protested outside County Bank’s Georgetown branch.
But, Slatcher said, neither Rangan’s lobbying nor public outcry contributed to the bank’s decision to terminate loan services.
“The consumer advocates group had nothing to do with our decision,” said Slatcher.
He said payday lending comprised roughly 45 percent of the total interest income that came from the lending services of the bank’s nine branches. But, discontinuing the loans will not disrupt nor detract from the bank’s economic health, he said.
“My bank is a very strong without that program. We’re considered well captitalized under any measurement. We have been in this program for eight years, and we were a very strong bank before this program,” said Slatcher. And, he added, “We will be a very strong bank without it.”
Before he made the decision to cease payday loans, Slatcher said many of the 19 employees working in the loan sector had already departed.
Many of those service providers are working for themselves now, which may not end up benefiting consumers, said Slatcher.
“Many have raised the fees in a less regulated environment,” he said.
But for Rangan, the bank’s decision makes County Bank a more credible institution.
“County Bank now has the will, energy and resources to go back to its core competency, which is a consumer bank, assessing what the community needs and meeting those needs in a manner which behooves County Bank,” she said.
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