PITTSBURGH, PENNSYLVANIA – The teller window at Whalebone Cafe Bank in Shadyside 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 Oh Yeah! ice cream and coffee shop on Highland Avenue, where he recently started his own version of a community bank.
Mr. Clay, who sees his bank as a way to offer local residents low-cost banking services, doesn’t have many depositors yet. But he has drawn the attention of state banking regulators, who late Wednesday said they’ll be moving to shut him down.
The store owner says 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 Mr. 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 late Wednesday. 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,” Mr. Novak said.
Earlier Wednesday, Mr. Clay had said bank charter requirements don’t apply to him because Whalebone actually is a gift card program. “We created a gift card savings account,” he said.
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, Mr. Clay said. A customer with $200 on deposit currently would earn “about 5.5 percent” per month, or roughly 11 exclamation dollars, he said.
Still, it’s not an accident that Whalebone Cafe Bank is being promoted as a bank.
“Quite frankly, it is a bank,” Mr. Clay said. “It really is a creative solution to banking in a new economy.”
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.
“I don’t intend to be insured unless our shareholders would like us to be,” Mr. Clay said.
Newly chartered banks are required to apply for FDIC deposit insurance.
Mr. 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.’ “
Mr. 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.
“If they want to say this is an innovative gift card program, maybe that is what they should say,” Mr. Novak said.
Mr. Clay said he manages customers’ deposits and calculates interest with a database he created. “That’s what took me so long to get it started,” he said.
So where does he keep depositors’ money?
“In a savings account with First Commonwealth,” he said.