State OKs Bills to Pay Off Thrift & Loan’s Depositors
The California Legislature approved a $63-million loan guarantee Thursday to pay off depositors of Western Community MoneyCenter, a Northern California thrift and loan association that failed more than a year ago.
The loan guarantee was approved as a joint package of separate bills intended to bail out Western Community’s depositors as well as bolster the insurance and supervisory system at all of California’s thrifts and loans.
The Senate approved its bill 29 to 5 early in the afternoon, while the Assembly approved its legislation 58 to 22 a couple of hours later. Gov. George Deukmejian is expected to sign the bills shortly.
The passage represents a major victory for Western Community’s 12,500 depositors, who have lobbied fiercely for months to get the Legislature to act.
Thrift and loan associations are small consumer banks that specialize in making short-term, high-interest loans for automobiles, boats and junior mortgages. California has 66 thrift and loans whose combined assets total about $1.8 billion.
Western Community, which had nearly $100 million in savings accounts, was closed April 20, 1984, by the California Department of Corporations because its capital had been depleted by bad loans.
The deposits were “guaranteed” up to $50,000 per account by the Thrift Guaranty Corp., a private company created by the state and overseen by the Department of Corporations. But a controversy soon erupted when depositors learned that the guarantee meant that they would receive their savings back in installments as Western Community’s assets were liquidated. It was a process that could take as long as five years, depositors were told.
Under terms of the bills passed Thursday, the state will back a $63-million loan from a private lender to pay off depositors. Then, the Thrift Guaranty Corp. will repay the loan as the assets are liquidated.
The legislation also contains provisions to ensure that similar failures don’t reoccur, including replacing the private insurance system with insurance from the Federal Deposit Insurance Corp.