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Dreher Tomkies LLP
Attorneys at Law
2750 Huntington Center
41 South High Street
Columbus, Ohio 43215
Telephone (614) 628-8000
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OCC SIGNS CONSENT ORDER WITH BANK OVER PAYDAY LENDING

First National Bank in Brookings, in South Dakota, entered into a consent order with the OCC in regard to its payday lending business, credit card programs and merchant processing activities. The Order illustrates the OCC’s continuingly active roll in preventing banks from engaging disfavored activities.

Under the Order, First National Bank will end its short‑term consumer loan business (payday lending) conducted in its name by Cash America and First American Holdings within 90 days of the effective date of the Order. The OCC was prepared to allege that the bank had failed to manage that program in a safe and sound manner. The OCC believed that the bank had failed to adequately underwrite or document payday loans and failed to adequately review or audit its payday loan vendors.

The Order requires the bank to establish a $6 million reserve to fund restitution payments to compensate consumers related to four credit card programs and requires the bank to change its marketing practices and disclosures for credit cards. The OCC was concerned with such practices as marketing cards as “no annual fee” while imposing monthly fees which the OCC felt operated in functional equivalent to annual fees.

The Order requires the Bank to terminate by March 31, 2003 its merchant processing activities conducted through First American Payment Systems. The OCC was concerned with the volume of merchant processing activities and participation in bank decisions by bank insiders with financial interests in the company.

In the Order the Bank did not admit or deny any wrongdoing.

For more information regarding this Alert , please contact Mike Tomkies at (614) 628‑1603 or mtomkies@dltlaw.com or Elizabeth Anstaett at (614) 628‑1604 or eanstaett@dltlaw.com .