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How to Understand Republic's Regulatory Organization of Prepaid and Small Dollar Credit

Adam Rust's picture

Posted November 13, 2012

Given that a number of people have reacted with - let's nicely call it curiousity - to the news about Republic's proposed credit product, I want to spend a few moments going over details in their October 18th filing which

should add some clarity to their business plans.

Setting Up the Background

As a pretext to that, it is important to understand the specifics of Republic Bank's corporate structure.

There are three names within the Republic Bank universe. The parent institution is Republic Bancorp.
It has two subsidiaries: Republic Bank & Trust and Republic Bank.

From the October 18th 8-k:
Republic Bancorp, Inc. (Republic) has 44 banking centers and is the parent company of Republic Bank & Trust Company and Republic Bank. Republic Bank & Trust Company has 34 banking centers in 12 Kentucky communities...
Republic Bank [the parent] has banking centers in Hudson, Palm Harbor, Port Richey and Temple Terrace, Florida as well as Blue Ash (Cincinnati), Ohio. Republic [the parent] operates Tax Refund Solutions, a nationwide tax refund check provider. Republic [the parent] offers internet banking at www.republicbank.com. Republic [the parent] has $3.4 billion in assets and is headquartered in Louisville, Kentucky.

Comments in bold are my emphases.

Republic has been on an acquisition spree lately. In 2012 they acquired Tennessee Commerce Bank. The Tennessee Commerce acquisition is now a part of Republic Bank. Then they acquired First Commercial Bank which is in Bloomington, Minnesota.

The two subsidiaries have different regulators: the Bank & Trust is a state chartered bank. Republic Bank as of

2012 was a federally chartered thrift in Florida.

The Arrangements

There are going to be three divisions under Republic Processing Group ("RPG"). Republic Credit Services (short-term credit), Tax Refund Solutions (refund anticipation checks), and Republic Payment Services (prepaid debit cards).

Things are in play.

Republic Processing Group is the key element. As of today, RPG includes RPS, RCS, and TRS and it is organized within Republic Bank & Trust. RB&T is a state chartered bank under the supervision of the FDIC.

The first part describes Now: From the 8-K:

As of September 30, 2012, the Company was divided into three distinct business operating segments: Traditional Banking, Mortgage Banking and Republic Processing Group (“RPG”). During 2012, the Company realigned the previously reported Tax Refund Solutions (“TRS”) segment as a division of the newly formed RPG segment. Along with the TRS division, Republic Payment Solutions (“RPS”) and Republic Credit Solutions (“RCS”) were created to operate as divisions of the RPG segment.

Nationally, through Republic Bank & Trust Company (“RB&T”), RPG facilitates the receipt and payment of federal and state tax refund products under the TRS division.

But then there is the future. Italics are taken directly from the filing. Comments in bold are my notes:

Nationally, through Republic Bank, [i.e. they are going to switch the prepaid part of the RPG group to the OCC] the RPS division is preparing to become an issuing bank to offer general purpose reloadable prepaid debit, payroll, gift and incentive cards through third-party program managers. [But they are going to keep the credit and tax divisions under the FDIC] Nationally, through RB&T, the RCS division is preparing to pilot short-term consumer credit products through multiple channels, including the internet and retail locations.

The bottom line: Republic is going to place "RCS" (the credit side) on the FDIC side but position its prepaid card side over to the Office of the Comptroller of the Currency.