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September 25th, 2012
11:45 AM ET
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Angry at his bank for taking too big a scoop in overdraft fees, one Pittsburgh ice cream shop owner decided to set up his own flavor of a community bank, with interest on deposits paid out in sweets.

Ethan Clay, a 31 year-old Steel City native, began running the Whalebone Café Bank out of the Oh Yeah! Ice Cream and Coffee Company in January and says so far he's taken in around $660 in deposits, mostly from regular customers. He also performs cash back transactions and for a $4 fee, check-cashing services.

"I want to skinny up these big banks," Clay said. "This is people putting their money together to transform the retail banking industry."

But deposits at Whalebone are not insured by the Federal Deposit Insurance Corporation (FDIC), which is why he's caught the attention of the state banking regulator.

"He does not have a license or charter to advertise as a bank or to take deposits," Ed Novak, a spokesman for the Pennsylvania Department of Banking, said in an email statement. "You need a bank charter to take deposits under Pennsylvania law."

Novak would not comment on any potential enforcement action by his agency.

For his part, Clay claims he isn't subject to Pennsylvania Department of Banking rules because he's using gift card accounts to hold customers money. He says he has been in contact with an investigator from the agency, but isn't aware of any enforcement proceedings against him.

To start depositing money, customers must open a gift card savings account. The gift card account accrues interest – at an attractive average rate of 5.5% – which can then be used for in-store purchases, including ice cream, waffles, and coffee, Clay said.

Whalebone also offers small loans, and currently has three loans outstanding, according to Clay.

"These are short term, micro loans to give people so they can save some money in their accounts," Clay said.

Since he's not FDIC insured, Clay acknowledges his customers need to have faith in him.

"You do have to trust my process, there is an element of that," he said.

But from a pure economics standpoint, Clay's business model faces its fair share of challenges, according to Dr. Chester Spatt, a professor at Carnegie Mellon's Tepper School of Business who served as the Chief Economist at the Securities and Exchange Commission from 2004 to 2007.

"On a small scale, there is a good rationale for this, to get attention and for the promotional aspects," Spatt said. But he could run into "issues involving creditworthiness or limitations on creditworthiness," due to the high interest rate he's promising.

"Realistically, could somebody pay out 5.5% a month, even in commodities? Of course not," Spatt said. But if Clay can "get attention to sell more ice cream, then yeah, that could work," Spatt said.

Nonetheless, Clay is committed to his vision and ultimately wants to open overdraft fee free checking accounts and help provide funding for community projects.

As Clay put it, "I want Whalebone to be a place where people with progressive ideas who want to change the financial world can get access to the funding they need."

Previously - Bargain-seeking bidders score big at grocery auctions

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Filed under: Ice Cream • News • Restaurant News • Restaurants

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    February 1, 2013 at 11:21 pm |
  4. onlyaname

    wait so this man has a problem with overdraft fees being high, i assume that means that has overdrafted correct? so you want to trust that man with your money? he cant even manage his own accounts. of course i do remember bank bailout in 2008 but atlest with them i knwo my money is insured and the goverment wont let them fail haha.

    September 27, 2012 at 1:38 am |
  5. Timodeus

    Don't like overdraft fees? Don't spend more money than you have. Problem solved.

    September 26, 2012 at 3:02 pm |
  6. Krandal

    I don't know how we can even talk about this when there such pressing stories like "Man gets DUI, blames pet squirrel "

    September 26, 2012 at 9:52 am |
    • Maria

      STOP – government sponsored terrorism against Medical Marijuana Patients – STOP the alcoholic thugs in DC.

      September 26, 2012 at 12:17 pm |
    • Not Surprised

      it was easy enough. You did it.

      September 26, 2012 at 12:22 pm |
  7. Christine R

    I love this Ethan Clay's idea! As a Marketing Director for a bank, I only wish that banks would display the same innovative spirit and imagination. I know I would walk to work with a lighter step if I worked for a bank named Whalebone Cafe Bank. Of course, there are the details of insurance, capital ratios, and data protection to contend with. Re the overdraft fees, yes, they are high. They are what enable banks to offer free checking. In the absence of regulation, banks behave like any company (including Whalebone) – they offer the pricing structure that customers tell us they want, by their behavior. When customers stop choosing free checking and decline overdraft service (by law, they have that choice), banks will stop offering it. Best of luck to Whalebone Cafe!

    September 26, 2012 at 9:16 am |
  8. Rednip

    5% per month is insane interest. If he could be trusted to really put out that sort of interest (I'm looking at you Madoff) I'd put in $2,000 tomorrow, as it would double my money in less than a year.

    Sounds like either your Professor is confused, you misquoted him or the shop keeper should be looking for a lawyer.

    September 25, 2012 at 11:25 pm |
    • TMan

      Per the Rule of 72, it would actually take 14.4 years to double your money at 5% interest.


      September 26, 2012 at 3:09 pm |
  9. Lee Burns

    Ethan Clay is a pioneer similar to A. P. Giannini, founder of Bank of Italy in 1900 in SF ( later became B of America ) Loans on a handshake.. Ethan is on to a great concept of community banking for people , young people 18 to 39. Big banks have abandonned young entrepreneurs and small town America.. Young people's ideas are our only hope to compete . Wall Street corp's are making record profits as are Major American corps but not lending or hiring. but sitting on trillions off shore. PS I'm 65 not 35 but we need progressive young people to get us out of this Republican mess.

    September 25, 2012 at 6:49 pm |
    • Carol B

      US Sponsorship of terrorism against Medical Marijuana Patients MUST STOP NOW...!

      September 25, 2012 at 11:08 pm |
  10. Jdizzle McHammerpants ♫♫

    As a former banker with investment licenses, his plan is doomed. It's a sweet idea (see what I did there?), but if he ever plans on it ever becoming larger than a novelty at his store he will need better ideas. Also, the banking industry is heavily regulated as stated in the article. Not having FDIC insurance is a huge red flag and the premiums to carry it will bankrupt him immediately.

    September 25, 2012 at 1:39 pm |
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