Sept. 14, 2012 -- Ethan Clay, owner of Whalebone Cafe Bank in Pittsburgh, has offered low-cost banking services with no overdraft fees since January, but the state's banking regulator is taking issue with his operation. The reason? Clay is offering services from his coffee shop and ice cream business.
Clay, 31, has been the owner of Oh Yeah! Ice Cream, which also sells coffee and waffles, for five years.
Dismayed by what he calls excessive overdraft fees from his bank account, he decided to offer a savings account of sorts with a 5 percent interest rate, using the gift cards for his business.
Clay says his services are more akin to a Groupon deal, in which a customer receives more that what they paid for.
Customers can deposit a minimum of $100 and earn interest in "exclamation dollars," which can be used to buy items from his business. Each exclamation dollar is worth $1.10 in real dollars.
The name, Whalebone, uses the same letters as "whole bean."
"I don't think that we fall under the category of a bank. Our service is to support people and to protect them from the banks," Clay said.
However, a spokesman for the Pennsylvania Department of Banking disagrees.
"We're not OK with what he is doing. We're [going to be] telling him to stop," spokesman Ed Novak told the Pittsburgh Post-Gazette on Wednesday.
Novak did not return a request for comment.
Clay said the state's regulators had taken an interest in his services about two weeks ago to see if his business falls under the banking category.
"I think it all comes down to the ice cream," Clay said.
That is, a person who works with the Pennsylvania Department of Banking was a regular customer, Clay said.
As of Friday afternoon, Clay said he has not received notification asking him to shut down his services. But if he does, he said he won't put up a fight.
"I'm not interested in fighting the bank regulators. I'm more interested in regulating the banks," Clay said.
Clay said his services are designed to create micro-loans to "people who are struggling with overdraft fees so they can bridge that gap and save in the long run."
"Ultimately we want to transform the retail banking industry," he said.
To start, he plans to ask First Commonwealth Bank in Pittsburgh, to which Clay has been depositing money from his business, to eliminate its overdraft fee and instead put in place a flat interest rate such that a customer who does overdraft would be able to pay toward a buffer to be used toward any future overdraft costs.
Before the Post-Gazette article published a story about his business, he had five account holders with a total of $550. The number of account holders doubled after the report, and "we're continuing to grow," he said.
His goal is to have at least $100,000 by Dec. 21.
"That's an easy goal. That's nothing in the banking world," he said. "I know if we can do $100,000, we can do $100 million."
Clay said he has no problem with banks making money from fees like overdrafts.
"They're just making a little too much," Clay said. "The citizens of the United States put a lot of money into the bank industry. I know at the same time we defaulted on a lot of loans. The whole banking crisis was completely caused by the banks."
He said overdraft fees are "a sign of their archaic practices."
"Punitive banking is not the future of banking," he said. "It's going to be people using money together, saving money and really making things happen."
If anything, his financial services have boosted foot traffic in his store, with an increase in people visiting to inquire about banking.
Clay, formerly a graphic designer and construction worker, said his business has always encouraged savings.
"We've always had cool offerings like bottomless cups of coffee," he said. "And if you bring your own cup, we offer $1 coffee."