The online personal finance company SoFi withdrew its application for a banking license, citing their recent leadership transition as the primary reason. The San Francisco-based startup had applied for a bank charter in June with Utah state regulators and the FDIC.
The company had planned to open a banking subsidiary that would provide deposit accounts and credit cards to its customers. However, the recent resignation of former CEO Mikey Cagney put SoFi’s banking application in a tenuous position.
SoFi was started in 2011 and is currently valued at $4 billion. Cagney was one of its co-founders and initially, the company only offered student loan refinancing as its main product. It started off pretty well. SoFi is a leading fintech company in the student loan refinancing space today, offering rates as low as 2.54% on a variable-rate refinance student loan.
Cagney envisioned it becoming a financial institution that could compete with large banks like JPMorgan Chase & Co. And it was Cagney who pushed the company into mortgages, loans, and wealth management.
Cagney resigned as CEO in September amidst allegations of sexual harassment and creating a toxic work environment. Two former employees had already filed lawsuits against Cagney, and SoFi launched its own internal investigation. Tom Hutton is currently serving as SoFi’s interim CEO until the Board of Directors can find a replacement.
However, Cagney is not the only executive officer who recently left the company. Former Chief Technology Officer June Ou resigned shortly after Cagney. And former CFO Nino Fanlo and former Chief Revenue officer Michael Tannenbaum resigned earlier this year.
SoFi’s banking license bid was controversial among consumer-advocacy groups and community banks. The company had applied for a charter to form an industrial loan company (ILC), which means it would enjoy many of the same privileges as a traditional bank without having to comply with Bank Holding Act requirements.
Many consumer groups are hesitant to welcome fintech firms like SoFi into traditional banking because they feel it violates the separation of banking and commerce. Critics complained that SoFi would undergo less scrutiny than traditional banks.
CEO of the Independent Community Bankers of America, “If these entities want to be banks, they should apply for banking charters and come under full and unified banking supervision.” Similar complaints have been made in regards to the company Square Inc. who submitted its own application in September.
SoFi spokesman Jim Prosser stated that the banking withdrawal is temporary and that the company has plans to reapply when the time is right. If SoFi follows through on its plans to resubmit its application at a later date they may face an uphill battle; the FDIC hasn’t approved any new ILC charters in over a decade.
Author: Andrew Rombach
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