In the next two weeks, the FDIC is going to issue a letter explaining how how banks should do business under U.S. rules with online lenders who may run afoul of state laws. The FDIC promise comes in the wake of demands from Republicans in the U.S. Congress to explain why it has pressured banks to cut ties with the online lenders. Credit this to Blaine Luetkemeyer, a Missouri Republican, who had pressed the FDIC in writing and in person to explain its stance. We can also thank the Online Lenders Alliance and Lisa McGreevy. OLA has been pressing from the start.
The letter should be made available within two weeks, but will it solve anything? The letter from Gruenberg does not explicitly state whether the FDIC regards online lenders who do not comply with individual state laws to be illegal operations. If it’s vague and says just watch who you do business with, we’re in trouble. This will scare off 99% of the banks, which is currently the state we’re in. The last month has been a mess for online lenders trying to collect money through ACH and merchant processing.
So far, the FDIC is playing dirty and intimidating small banks. For example, one bank told a lender the FDIC had refused to close out its current audit of the bank until it ended the processing work. Another bank that was considering an online lender as a client faced a threat of an unplanned audit, according to the document. If banks get scrutinized for working with Online Lenders, they just won’t do it.
I’ve heard rumors of six digit fines for banks over a single infraction. Some third party processors are blocking ABA routing numbers in states where payday loans are prohibited. This has been a disaster because the large banks are national. An Illinois borrower can be using a North Carolina bank routing number.
Let’s hope “Reasonable Measures” are reasonable.
Read more at Bloomberg: Online-Lending Rules Clarification Promised by FDIC’s Gruenberg.
