Spurned, Delco-based bank sues FDIC

Just because Obama wants banks to start lending again, doesn't mean federal regulators are rubber-stamping lenders' attempts to make more loans and add new offices.

Among Philadelphia-area deals, Metro Bancorp's attempt to buy Republic First Bank of Philadelphia came to grief because regulators kept putting it off. Bancorp Bank's attempt to buy what's left of American Home Mortgage hasn't won federal approval either, last we checked.

But one local banker won't take No for an answer. Rocco Abessinio's Applied Bank, based in Glen Mills, Delaware County (and chartered in Delaware), is suing the Federal Deposit Insurance Corp. in Washington, alleging the government "indefinitely, unreasonably, and unlawfully delayed and prohibited" it from adding new branches. FDIC spokesman Michael Barr said the agency doesn't comment on cases. The case is 10-cv-00507 in District of Columbia federal district court.

Background: Abessinio's predecessor bank, Cross Country Bank, made $1 billion in profits, and a lot of enemies, from 1995-2005 as a "secured credit card lender" to consumers with damaged credit.

The bank lent to the same kind of income-challenged borrowers who defaulted on their mortgages, sparking the credit crisis. But unlike home mortgage lenders, Cross Country and a handful of rival "secured" Visa and MasterCard issuers charged high upfront fees and demanded deposits they seized to cover their losses when clients defaulted.

With his profits, Abessinio, a former Delaware Trust Co. officer, built an office complex near US 202 and US 1, hired 5,000 people there and at sites in West Virginia, Kentucky and Florida, and became a donor to his alma maters, St. John Neumann College and Salesianum High School.

But Cross Country's high fees and penalties, and aggressive repeat-calling collection tactics by its affiliated Applied Card Services unit, provoked complaints from more than a dozen state attorneys general, and pressure from the Federal Deposit Insurance Corp. Abessinio fought back in court, but he told me he also became very uncomfortable with competition from reckless big-bank lenders after 2000.

So in the past few years, he shut most of his card operations, and refocused as a community bank, renamed his company Applied Bank, and opened branches in Wilmington and Newark, Del., with the blessing of Delaware State Banking Commissioner Robert Glen and, initially, the FDIC.

Last year Abessinio built a third branch in the booming resort town of Rehoboth Beach and asked for permission to open. Glen approved - but the FDIC balked.

In meetings with FDIC officials, the lawsuit claims, agents cited Applied's alleged failure to comply with fee limits in the new federal credit card law as a pretext for denying his Rehoboth branch. Applied Bank says that it complies with the law - and that the FDIC's own rules wouldn't allow it to deny the branch application, even if Applied was still making new credit card loans. The FDIC's refusal, the bank concludes, is "arbitrary, capricious, an abuse of discretion."