When the State Kayoed Their Bank, These Kids Fought Back and Proved They Weren't Small Change

updated 08/22/1983 AT 01:00 AM EDT

originally published 08/22/1983 AT 01:00 AM EDT

The "vault" was a metal box with a handle on it, and the "cash drawer" an old jewelry box. The "bank" operated out of four desks and the customers were mostly fifth and sixth graders from the Easton Middle School in Easton, Mass. Still, the HAL (High Ability Learner) Cooperative Bank was a success, and its three-month profit of $46.60 contributed to its downfall. Last April two state bank examiners advised Massachusetts' littlest lending institution to "cease and desist," accusing the fledgling financiers of charging usurious interest rates and violating three other state regulations. The kids argued that they had to charge an interest rate of 8 percent a week to avoid dealing in fractions of pennies, and besides, the loan ceiling was $1.50. After the bank was closed, some of the kids felt that the examiners had been too harsh. "It was a rotten thing for them to do," says Dean Peterson, 12, chairman of the bank's board. "It's like shutting down a lemonade stand."

Sympathetic Massachusetts legislators agreed and drew up a rescue plan. Next month they expect to get the signature of Gov. Michael Dukakis on emergency legislation allowing student banks like the HAL cooperative to operate under restrictions, such as keeping their assets below $500.

The school bank was the brainchild of Ann Hoyle, 49, a teacher who specializes in programs for especially gifted children. She saw it as a valuable learning tool—and a way to help the kids if they forgot their milk or lunch money. The bank prospered, as banks generally do. By the time the state's watchdogs stepped in, the original staff of 20 student bankers had swollen to 35, with a board of directors, tellers, loan officers and a collection agent. The size of the loans varied: 25¢ for milk money, up to 75¢ for lunch. The volume of business depended on what was available for lunch. "On days when we had pizza," says Kari Biddle, 12, a former teller and bookkeeper, "a lot of kids borrowed. Other days, maybe we had five customers." When the bank decided to branch out and open a school store, students could borrow up to $1 to cover the cost of such items as pens, pencils, crayons and jigsaw puzzles. Delinquent borrowers were handled discreetly. "I'd leave a note on their desks or up on the chalkboard with their name on it," explains former collection officer Marc Gelven, 12. "It would say, 'Please pay soon or you will owe more money.' " When the ledgers were closed, the bad-loan column totaled only $2.

The backlash of bad publicity following the zealous busting of the bank was embarrassing to State Commissioner of Banks Paul Bulman. His men may have been precipitous, he admitted. "It was an overreaction to go into a sixth-grade environment as heavy regulators," Bulman says.

Last month a well-spoken delegation of the grade-school bankers took their case for reopening the bank before the state legislature's Joint Committee on Banks and Banking, and a favorable outcome seemed certain. Said one reporter covering the packed hearing: "No politician in his right mind was going to walk in front of those television cameras and take on a bunch of well-behaved, well-scrubbed and well-rehearsed kids." "There was no condescension," says State Representative William Vernon, who helped arrange the hearing. "These kids were very bright—I felt like I was talking to college students."

Now, with the prospect of being able to reopen the HAL bank at the beginning of the new school year next month, Hoyle looks forward to introducing a new crop of sixth graders to the world of high finance. "We weren't the only school bank in the country," she says, "but I think we were the only one to be closed down." Most of Hoyle's former banker students have gone on to junior high. When some were asked what they wanted to be when they grow up, they named a variety of professions—except one. "No one wants to go into banking," said former loan officer Jennifer Musselman, 12. "Not after this."

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