As San Francisco-based Social Finance, better known as SoFi, waits for a decision on its bank charter application, the request is drumming up a lot of criticism.
SoFi originally asked the Federal Deposit Insurance Corporation to grant the company a banking license back in June.
The move marked one of the “most advanced efforts by a financial-technology startup to obtain the power to offer bank products and services in exchange for stricter regulation, an article in The Wall Street Journal by Peter Rudegeair stated.
Currently, SoFi focuses on student loans, mortgages and personal loans, along with a handful of other offerings. In this application, SoFi applied for an industrial loan charter under the name SoFi Bank in Utah.
SoFi outlined in the application that the purpose of the charter is to provide its customers a FDIC insured NOW account and a credit card product. The bank will offer no other products or services.
The process was destined to be difficult from the start though. Rudegeair noted that there hasn’t been a new industrial loan company charter approved in about a decade.
In addition to this, Rep. Maxine Waters, D-Calif., ranking member of the House's Committee on Financial Services, sent a letter to FDIC Chairman Martin Gruenberg, calling for the FDIC to hold at least one public hearing on SoFi’s application to establish an Industrial Loan Company (ILC).
The letter states:
“Since the enactment of the Dodd-Frank Wall Street Reform and Consumer Protection Act ("Dodd-Frank Act"), changes in the financial regulatory regime and financial services industry justify a public hearing to examine the policy and legal implications of granting Federal deposit insurance to. ILCs generally, as well as to obtain greater input on the unique risks posed by granting it to a financial technology ("fintech") company like SoFi.”
Under the rules, Waters said that the determination of whether to hold a public hearing falls to the discretion of the regional director. However, she urged the chairman to exercise his authority “to require that a public hearing be held on this ILC application to ensure that all external stakeholders and members of the public have adequate opportunity and time to provide input on this landmark application.”
From the letter:
“Granting SoFi’s application would set a precedent that a wide variety of other fintech companies may choose to follow even though concerns related to financial inclusion, consumer benefits, supervision, and regulation of such entities are still unresolved. Thus, the FDIC should carefully consider these concerns when reviewing SoFi’s application, and in doing so, hold a public hearing to allow for a fuller vetting of the advantages and disadvantages of extending an outdated regulatory framework for ILCs to fintech companies, and the potential implications for the broader financial system.”
In response to Waters’ comments, a SoFi spokesperson said, "We're happy to discuss our application with Rep. Waters and other interested parties, and confident the FDIC will conduct its review of our application expeditiously and in accordance with the law."
And Waters isn’t the only one vying against SoFi. The Independent Community Bankers of America also sent a letter to the FDIC over the application, urging the FDIC to reject the application.
“For safety and soundness reasons and to maintain the separation of banking and commerce, the FDIC should deny SoFi Bank’s application and impose a moratorium on future ILC deposit insurance applications,” ICBA Executive Vice President and Senior Regulatory Counsel Christopher Cole stated. “SoFi should be subject to the same restrictions and supervision that any other bank holding company of a community bank is subject to.”
ICBA also stressed that Congress should close the ILC loophole, stating it not only threatens the financial system but creates an uneven playing field for community banks.
The comment period for the charter closed on July 6. SoFi is now awaiting a decision from the FDIC.