This from Delaware on-line and jerrydj.com: Cross Country Bank hit with restrictions Regulators warn credit card issuer By JONATHAN D. EPSTEIN Staff reporter 07/02/2002 Federal banking regulators have imposed a host of restrictions and demands on Cross Country Bank, cracking down on what the Federal Deposit Insurance Corp. called "hazardous lending and underwriting practices," according to a regulatory order made public on Friday. The cease-and-desist order against Wilmington-based Cross Country, the nation's 16th-largest credit card issuer with $2.5 billion in loans, does not mean the fast-growing lender is in danger of failing. Cross Country, owned by Wilmington native Rocco Abessinio, is profitable and earned $93.6 million last year and $36.2 million in the first quarter, executives said. "We're still one of the strongest, most well-capitalized banks in the country," Abessinio said Monday. But regulators said the company, which lends to borrowers with bad credit or no credit history, may have to slow its growth and take steps to limit which credit card applicants it accepts. Cease-and-desist orders are the highest levels of regulatory action short of banning someone from the industry or shutting down a banking operation. Regulators are tightening the reins on subprime lenders to prevent practices that could lead to heavy loan losses or even failures that would require dipping into government deposit insurance. Subprime lending led to the failure of several smaller institutions, including BestBank in Colorado and Superior Bank FSB in Illinois. Regulators have cracked down on Providian Financial Corp. of San Francisco and Metris Cos. Inc. of Minneapolis, and shut down Phoenix-based subprime card issuer NextBank in February. And they are developing new rules that would impose consistent policies on all credit card issuers. But the regulatory action taken against Cross Country is more serious than the action taken against Providian and Metris, said credit card analyst Moshe A. Orenbuch of Credit Suisse First Boston. That means regulators see Cross Country as riskier, he added. The FDIC has ordered Cross Country to stop operating with "a large volume of poor quality loans," and without enough capital or without enough reserves for possible loan losses. The bank must adhere to stricter underwriting standards. It must write off, or set aside reserves to cover, all credit card debt that is more than 120 days late. And it must restore its allowance for loan losses to between $450 million and $500 million, and set aside reserves of $50 million to $75 million to cover fees and interest charges it can't collect. It must maintain loan loss and fee reserves that can cover expected losses 12 months into the future, instead of the current eight. And it must maintain higher capital levels for unexpected losses. Also, it can't grow assets or deposits more than 1 percent in any three-month period without permission. Last year, total loans grew 5 percent, and the bank saw double-digit growth in the past, according to industry newsletter Nilson Report. Reach Jonathan D. Epstein at 324-2880 or jepstein@delawareonline.com *** And with class action settlement statements to be sent in a couple weeks, mr. rocco is starting to sweat a bit...
