WASHINGTON, Feb. 8, 2002 -- Federal regulators have closed NextBank, N.A., a unit of NextCard Inc., for "unsafe and unsound" financial practices. The bank is now under the control of the Federal Deposit Insurance Corp. (FDIC).
The Office of the Comptroller of the Currency (OCC) said NextBank had extended too much credit to its 1.2 million credit card customers.
In a statement, the company said efforts to find a buyer had been unsuccessful and said its business strategy was being "reevaluated." NextBank is the first Internet-only bank to be closed by federal regulators.
Visa said NextBank Visa cards will remain valid for now, although no new applications will be taken.
Like most Internet banks, Phoenix-based NextCard did not offer a full range of banking services. Its product line consisted of credit cards and $100,000 certificates of deposit. It had amassed deposits of $554 million, not much by regular banking standards but large compared with other Internet banks.
The comptroller's office said that NextBank had failed to develop policies to would protect itself if large numbers of credit card customers defaulted, which in fact is what has happened as the economy has soured over the last two years.
The FDIC said that depositors who had $100,000 or less in NextBank will get all of their money back. Those with larger deposits will get more than $100,000 back only if there is money left over after the bank is liquidated. Regulators said accounts totaling $29 million exceeded the $100,000 limit. (Information for depositors).
Trading of NextCard shares was halted on the Nasdaq. The stock closed at 14 cents, a fraction of its onetime high of more than $40.
