The Independent Community of Bankers of America (ICBA), an influential lobby group for U.S. banks, is pushing the Federal Deposit Insurance Corporation (FDIC) to reject SoFi’s application for launching a banking unit.
SoFi, an online personal finance company, applied for a special banking charter known as an industrial loan charter (ILC) on June 6, according to LendEDU. As mentioned earlier, the move is not without opposition.
Chris Cole, senior regulatory counsel at the ICBA, urged the FDIC to deny SoFi’s application in an article on the Financial Times. Cole went on to say that SoFi is attempting to exploit a loophole which would give the company access to the federal safety net without having to comply with laws that regular banks must follow.
“You don’t have any regulation of the parent company under the Bank Holding Act; that is almost always the reason why companies are setting these [structures] up,” Cole said.
Cole intends on writing a letter to the FDIC before the comment period ends next month. He also noted that the ICBA, with the help of other groups, thwarted a similar attempt by Walmart to launch a banking unit in Utah nearly a decade ago.
A company has not been granted an ILC in eight years, a reminder of how difficult this process can be.
If SoFi’s application for an ILC is approved, the company would be able to collect FDIC-insured deposits through its banking unit. This would be a major step in SoFi’s ambitious mission to challenge traditional brick-and-mortar banks throughout the U.S.
SoFi has grown rapidly since it was founded by four Stanford graduate students in 2011. The online personal finance company started as a student loan refinancing company, but has since moved into offering mortgages and personal loans. Additionally, SoFi has expanded its financial services operation to offer wealth management.
The company now wants to offer more traditional banking services like deposits, checking accounts, and savings accounts, which is why applying for an IFC makes sense. Earlier, SoFi acquired banking startup Zenbanx, whose infrastructure should help get banking operations off the ground.
These ambitious moves by SoFi have caused tensions between the world of financial upstarts and traditional banks, who have complained of not being on a level playing field because of tougher post-recession regulations.
“We want these fintech companies to be subject to the same kind of regulations as banks are,” said Mr. Cole of the ICBA.
Author: Andrew Rombach
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