Fed up with fees, owner turns ice-cream shop into bank

Sep 14 2012 - 11:50am

PITTSBURGH -- The teller window at the Whalebone Cafe Bank in Pittsburgh looks a lot like an ice cream counter.

That's because it is.

The start-up operation is the brainchild of Ethan Clay, the owner of the Oh Yeah! ice cream and coffee shop in the city's Shadyside neighborhood, where he recently started his own version of a community bank.

Clay sees his bank as a way to offer local residents low-cost banking services. He said he has been working for about two years on a way to stick it to the big banks following some unpleasant experiences, including racking up some $1,600 in overdraft fees after overdrawing his account by $200.

"I'm just really clear that the retail banks in Pittsburgh are not out in the best interest of small businesses or individuals," he said.

Promotional materials for his new bank are sweeter than a scoop of cake batter ice cream. "Whalebone is a friendly 'bank' creating a low cost and non-punitive form of banking," a flier states.

A sign on the front door urges customers to "Skip the Banks" and deposit money with Whalebone, which touts "5%+ Oh Yeah interest" per month on simple savings accounts, "beat the fee" loans and check-cashing services.

"Just got my paycheck cashed today and I'm planning on opening an account very soon," said a post on Whalebone's Facebook page last week.

So far, Whalebone has attracted a handful of depositors and made three loans, according to Clay, who opened his ice cream business five years ago.

His "working prototype" for a bank appears headed for a showdown with regulators, however.

Places that accept deposits or make loans have to be licensed or chartered by state or federal regulators. Whalebone is not.

"We're not OK with what he is doing. We're (going to be) telling him to stop," Pennsylvania Department of Banking spokesman Ed Novak said. He said that because the business falls in a gray area, "We don't have the authority to punish him, but the DA does."

"If he doesn't stop, I think he will be hearing from the district attorney," Novak said.

Clay contends bank charter requirements don't apply to him because Whalebone actually is a gift-card program. Customers who deposit a minimum of $100 earn interest in the form of a made-up currency called "exclamation" dollars, which can be used to buy ice cream or other items at the store.

Every $1 in exclamation bucks is worth $1.10 in regular dollars, Clay said. A customer with $200 on deposit currently would earn "about 5.5 percent" per month, or roughly 11 exclamation dollars, he said.

"It really is a creative solution to banking in a new economy," Clay said

He said he wanted to create "a truly local, local bank where people who drink coffee together ... were actually sharing each other's money. And I wanted people to be able to borrow money at a reasonable rate."

The Oh Yeah! accounts are not insured by the Federal Deposit Insurance Corp., despite the fact that newly chartered banks are required to apply for FDIC deposit insurance.

Clay said he had his first contact with state banking regulators two weeks ago.

"They said this is very innovative and we like it," he said early Wednesday. "I've been in communication with an officer there. She said, 'I don't think you fall under the banking category, technically speaking',"

Novak, of the state banking department, said he wasn't permitted to comment on regulatory discussions.

"I've seen their Facebook page. They are advertising themselves as taking deposits, and they need a charter for that," he said. "We're not in the Wild West any more.

Clay said he manages customers' deposits and calculates interest with a database he created. So where does he keep depositors' money?

"In a savings account with First Commonwealth (bank), " he said.

(Distributed by Scripps Howard News Service, www.scrippsnews.com.)


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