More payday loans - OUT

Republic is ending its partnership with ACE Cash Express, a company that offers the bank's payday-loan service in Texas, Arkansas and Pennsylvania. It also is ending its Internet-based payday lending.

Last year the FDIC tightened rules on banks that offered payday loans through third-party marketing companies such as ACE Cash Express. The new rules forced banks to track their partners' actions more closely and to enforce limits on how many loans could be extended to an individual.

In 2004, payday loans accounted for 22 percent of Republic's profits. During the third quarter of last year, 28 percent of Republic's profits came from such loans. But Republic stopped offering payday services in North Carolina during the final quarter of last year, cutting off nearly all of its payday profits.

"It currently represents such a small part of our business … and it generated virtually no net income for the fourth quarter," Trager said. So when the FDIC sent a letter last month encouraging Republic to get out of the business entirely, Trager said the time was right.

FDIC spokesman David Barr said Republic is the last of the large banks to stop payday lending. Last month the First Bank of Delaware announced its exit from the business.

"These are unsecured loans," he said, meaning borrowers did not have to offer collateral to get them. "To collect an unsecured loan, you're probably going to have to spend more money than the loan is worth."

Besides the financial risk, Barr said the controversial loans could hurt banks' reputations.

"These loans have a very high profile, and there are a lot of people who do not like this practice," he said.

Groups such as the Consumer Federation of America are praising the FDIC's targeting of bank-connected payday lending, saying it will force storefront operators like ACE Cash Express to follow local and state regulations. As partners with nationally chartered banks, the lenders were able to avoid most local restrictions, including caps on interest rates and fees.

"It's high time someone cracked down on this," said Jean Ann Fox, director of the federation's consumer-protection division.

Trager defended the loans, saying his company's fees were reasonable.

"I always considered us a responsible service provider to the people who wanted this product," he said. "We had hundreds of thousands of customers, and I think we served them well."

Trager also downplayed the financial risk, saying the default rate was lower for payday loans than for the bank's traditional lending services.

Republic stopped offering payday loans in Texas this week, and it plans to stop offering loans in Arkansas and Pennsylvania by June 30.