Senators Want Sallie Mae to Sell North Carolina Savings and Loan: Did the Agency Have Legal Authority to Buy First Capital?

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A bipartisan group of U.S. senators wants to force the Student Loan Marketing Assosication to sell off its recently purchased North Carolina savings and loan association.

According to a staff member of the Senate Labor and Human Resources subcommittee on education, art, and the humanities, which has oversight responsibility for the corporation, key committee members were riled by the purchase.

The corporation, also known as Sallie Mae, paid $3.2 million in July for the new charter of Sunbelt Savings of Southern Pines, N.C., which it renamed First Capital Corp. The acquisition followed a thwarted attempt last year to purchase a savings and loan in Virginia and a recently abandoned plan to purchase a North Carolina bank.

Regarding the First Capital purchasE, the staff member said, "The senators are strongly opposed to that action." He was referring to Labor Committee Chairman Orrin G. Hatch, R-Utah; Robert T. Stafford, R-Vt.; Jennings Randolph, D-W. Va.; and Claiborne Pell, D-R.I.

"They don't believe Sallie Mae has the legal authority to do that," the staff member said. "Sallie Mae was created as a secondary market institution for student loans, not as an entity that would compete for customers in the banking world."

Sen. Stafford is planning to offer an amendment in September -- possibly to his own Student Loan Consolidation Act (S. 2491) -- that would force divestiture of First Capital.

Sallie Mae officials, on the other hand, stand behind their decision to purchase the state-chartered, privately insured thrift.

"First Capital Corp. will provide Sallie Mae with an efficient delivery vehicle for its existing services," Sallie Mae president Edward A. Fox has said, "and for a new generation of education-related products and services."

And Beth Van Houten, a Sallie Mae spokeswoman, said agency officials "are confident and firm" in their perception that the corporation has the authority to own an S&L that specializes in education credit.

That perception was bolstered by "outside counsel," she said. She declined to identify the counsel, and said Sallie Mae did not consider the legal opinion to be "public information."

Among many other new credit plans, the First Capital would act as an intermediary for a Sallie Mae loan program for graduate students nationwide and teachers within the state.

Robin Spangler, a deputy administrator for the North Carolina Savings & Loan Commission, agreed that the purchase satisfied legal requirements.

"We researched our law and our regulations thoroughly," she said, "and we found no reason it cannot be done."

However, federal lawmakers are not alone in questioning the legality -- and propriety -- of the purchase.

In Raleigh, the North Carolina League of Savings Institutions is studying these questions: Does the government need to be competing with private business in something that private business can do itself? And, is Sallie Mae going beyond its authority by purchasing a private savings and loan?

The league's staff found out about the unprecedented purchase when first Capital opened July 27 -- two days after the league's annual convention had adjourned, according to Paul Stock, the league's executive vice president and counsel.

The league's board of directors has authorized staff members to study the purchase, but the league has not adopted a formal position on the transaction yet, Mr. …