How I Beat the Fed
Not every entrepreneur is eager to take on the federal government. Gabriel Krajicek, CEO of BancVue, did it because he had no choice. BancVue, based in Austin, provides community banks and credit unions with software and technical support that allow them to offer an array of interest-bearing checking accounts. More active accounts earn higher interest rates. When, in 2006, the Federal Reserve ruled that these products were illegal, the company had just three months to change regulators' minds. After that, its cash reserves would be depleted, forcing the company to close.
I came from the auto industry, where I had built websites for dealers. I didn't know a lot about banking regulations. We were blowing and growing, and I didn't have time to learn them all. But we really felt we had done our due diligence. We had signed up about 45 institutions -- most went through multiple examinations by the Fed and the FDIC, and none had ever run into a problem using our product. Revenue in 2005 was about $400,000, and we were on track to make about $1.6 million in 2006.
Then, in October 2006, a compliance consulting company, hired by a prospective customer, said it thought our program was illegal because the Truth in Savings Act says you can't stop paying interest to a depositor for a lack of account activity. We disagreed, since most states define a dormant account as one in which no action has been taken in six to 12 months. We were clearly not in violation of that. Our rewards program paid interest to people who, say, make 10 debit card transactions instead of eight. But the consultant contacted the Fed.
That's when the Fed told us that our program was not in compliance. I asked Tim Eisenman, a banking veteran who sits on our board, if this was a big deal. He said it was the kind of big deal that would put us out of business.
It was a crushing blow for me personally. I had moved my wife, Beth Anne, down from Nashville. I had promised her this was going to be an awesome company, and now it looked like it was going to end.
I called up Don Shafer, our chairman and co-founder. I expected to hear some four-letter rant followed by talk about wrapping up the business. Instead, this voice booms out into the phone: "Hallelujah! Thank you, God, for giving us the chance to show how awesome you are." He then told me, "You're a smart guy; you'll figure it out," and then he hung up.
After I got home that evening, I had a revelation. We were going to go to war with Washington. We were going to fight and win. I walked into the bathroom, grabbed a razor, and started to shave off all the hair on my head. Beth Anne had to help me.
Everyone in the company saw their CEO with a bald head. They also heard me on the phone every day for three months with our attorney and the folks at the Fed haggling over ways to reinvent our program. I wanted my employees to know that we were going to war and that I wasn't hiding or dragging my butt just because things got scary. I wanted them to see my game face and to know that I was 100 percent committed to winning.
In December, I got an e-mail from a guy at the Fed in response to a proposed revision to our program. We thought we had found a loophole in the regulation. If the banks paid interest to all their customers but offered different tiers, paying out higher interest for more active customers, we would be in compliance. The Fed guy wrote back, saying only, "That should work." That's all we needed. I walked around the office with that letter held high over my head. I felt like I was floating on clouds and angels were singing all around me. I knew we were still in business.
Darren Dahl is a contributing editor at Inc. Magazine, which he has written for since 2004. He also works as a collaborative writer and editor and has partnered with several high-profile authors. Dahl lives in Asheville, NC.