NetBank's Collapse Causes Customers Pain

Some time on Friday, Federal regulators made a decision that impacted people and their money all over the country. With mortgages and other loans defaulting at unprecedented numbers, regulators from the FDIC (Federal Deposit Insurance Corporation), shut down the nations first bank based completely via the Internet. NetBank, which since its founding has been based in Alpharetta, GA., a suburb of Atlanta, saw its business come to an end when federal regulators stepped in and shut down the operations to the surprise of customers who went to their ATMs and tried to use their debit cards with no success the day the federal officials stepped in.

Not since the early 90s has a bank the size of NetBank collapsed under the weight and/or pressure of operations. With over $2.5 billion in assets the move is unprecedented. And with the failure of NetBank to close a buyout by EverBank of Jacksonville, federal regulators were left with little choice but to shut down the Internet bank. But that did not help people like Taneshia Wilson who has used the bank for about six years. Based in Memphis but who spends a lot of time in New Jersey, Mrs. Wilson is a typical NetBank customer who like the open access that an Internet bank offered in comparison to traditional brick and mortar financial institutions.

However, with no warning to customers including Mrs. Wilson, federal regulators made the weekend difficult for NetBank customers as their deposits were temporarily suspended in the aftermath of the shut down. Besides being unable to access her accounts via the Netbank web site, debit cards and check verification was impossible as well. That made the weekend a difficult few days for accountholders who were left out in the cold because of the regulations involved with shutting down a bank.

From the early days, NetBank set itself apart as a dependable financial solution for people. With an array of products beyond simply deposit accounts, NetBank enjoyed a nice run during the early part of this decade as people flocked to see the potential of Internet banking before most traditional banks moved their operations to the world wide web. With just over 100,000 customers today, NetBank is not a small institution. But it made some poor decisions and had ineffective controls for loaning money.

If a customer has never been through a bank shut down before obviously Friday afternoon was met be a great deal of confusion and anger as some struggled to make sense of it all. Unable to conduct any business activities and equally unsure if direct deposits were received or not, NetBank customers were left to fend for themselves over the weekend. This furthered the panic that some felt, having to spend the weekend without access to any funds in their accounts. Beyond that, Mrs. Wilson like many others got a similar notice that said that ING was taking over the accounts. But without access to any money did it matter who had paid $14 million for the accounts? The reality is, customers paid a price for the mortgages that are defaulting. Whether it is their fault or not, they are paying a heavy price and paid dearly this weekend.

With the savings and loan collapse in the late 80s, federal regulators have become hyper-sensitive in handling uneasiness in the banking industry. NetBank's collapse is the second largest since the savings and loan fallout. With a national presence and ATM partnerships for its customers, the impact of NetBank could be significantly different than a standard brick and mortar bank. When a traditional bank collapses, its influence is based on the regional hub of that bank. Only Citicorp has a national footprint across the country with its banking centers around the US. With Wal-Mart's recent decision to introduce MoneyCenters in its stores, it will no doubt become the viable solution for many NetBank customers who need convenient banking options.

In the end though, NetBank collapses because it failed to provide a safety net for its customers.