OA is way late to this. Turns out that the 2.35% rate GMAC/Ally was advertising last week was already a significant cut from 2.8%, made at the behest of the FDIC, which had written a letter instructing them to lower deposit costs. [Even so, as of today, the 2.35% APY offer still ranks them tops for 1 yr CDs.]
Ron Lieber has the full story at the first link above. And his conclusion properly alludes to the key issue: Going after individual banks that are both weak and offering high rates will always be a whack-a-mole exercise. As long as we have (ridiculously underpriced) public deposit insurance, free-riding weak banks will keep offering high rates to fund risky projects.
- A borrower who is angry with the bank for lending her too much (the loan officer raves about her business plan, saying she’ll make a profit, “which is why I went forward.”)
- A competing bank exec who says other bankers in town urged borrowers who fell behind on payments to get second loans with New Frontier in order to pay off first loans with their own banks.
- New Frontier’s founder who insists he didn’t do anything wrong because his loans “helped the community.” For perspective, 35% of New Frontier’s loan portfolio was delinquent at the end of March, compared to less than 4% at CO’s other state-chartered banks.