The Independent Community Bankers of America, a trade group representing about 6,000 small banks holding almost $5T in assets, is lining up against SoFi, urging the Federal Deposit Insurance Corporation to reject its application to launch a banking unit.
The action comes a week after the FDIC announced that digital lender SoFi had applied to the state of Utah for a special banking charter known as an ILC. Should the charter be granted, SoFI would be able to take deposits and in many ways be on equal footing with the banks it currently competes with.
But, according to Chris Cole, senior regulatory counsel at the Independent Community Bankers of America, the charter should not be allowed to go through. SoFi, Cole argues, is attempting to take advantage of a “loophole” that would allow it access to the federal safety net without having to comply with all the laws a regular bank faces.
The ICBA and other groups had had some success in the past shutting down new entrants into banking. Ten years ago Walmart to launch in Utah, where many ILCs are based, and was shut down.
“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,” he said.
And ILC applications are not easy to get through — if SoFi manages, it will be the first firm in over a decade to have done so. SoFi argues that it needs the charter to provide a fuller menu of services for its clients — in 2016 the firm generated just over $8B in loans, according to S&P Global Market Intelligence, more than any other online lender in America. However, as an online lender, SoFi does have to continually find investors for its loans, which has become more challenging as the investment market has improved in general.
Banks, on the other had, argue FinTech competitors are playing on an unlevel field where regulation is concerned and have managed to escape many of the more onerous rules that banks have had to suffer under since the Great Recession.
“We want these FinTech companies to be subject to the same kind of regulations as banks are,” said Mr Cole of the ICBA.
Richard Hunt, a lobbyist for the Consumer Bankers Association, noted SoFi has a history of being “loosey-goosey” with respect to laws governing banks with regular charters.
For example, the Community Reinvestment Act requires federally-insured banks to support low-income groups within their communities. SoFi, he notes, built its model focusing on servicing the students of elite universities.
“If you went to Princeton, Stanford or Harvard you can get a loan, but if you’re a ragin’ Cajun from Indiana I’m pretty sure you’d have been denied,” said Hunt, who is president and chief executive of the CBA.