On March 17, SmartBiz became the first financial technology (fintech) in Trump’s second term to receive regulatory approval to become a bank.
The Office of the Comptroller of the Currency and the Federal Reserve Bank of Chicago approved SmartBiz’s acquisition of Northbrook, Illinois-based Centrust Bank NA, SmartBiz said in a statement Monday. It’s the first time a fintech company has become a bank since 2021, during Trump’s first term as president.
Bloomberg
It is rare for fintechs to become banks, with few receiving charters. In this case, SmartBiz did so by acquiring Centrust Bank NA. A potential incentive for becoming a bank includes preferential treatment from regulators.
Michele Alt, of Klaros Group, indicated that more fintechs will be approved as banks under the second Trump term as a result of deregulation.
It’s the corruption, stupid
It should be noted that fintech companies have a history of corrupt behavior, especially during the COVID-19 pandemic.
One situation in which [fintech firm] Kabbage approved a suspicious loan became public in a Florida lawsuit filed by a woman, Latoya Clark, who received more than $1 million in PPP loans to three businesses. When the funds were deposited into accounts at JPMorgan Chase, the bank discovered that Clark’s businesses hadn’t been incorporated before the PPP program’s cutoff and froze the accounts. Clark sued Chase, and Chase then filed a counterclaim against the borrower and Kabbage, which had originated the loan despite its questionable documentation. In its response, Kabbage said it had not yet completed its investigation of the incident.
Although the Justice Department rarely names lenders that processed fraudulent PPP applications, Kabbage has been named at least twice. One case involved two loans worth $1.8 million to businesses that submitted forged information, and the other involved a business that had inflated its payroll numbers and submitted a similar application to U.S. Bank, which flagged authorities. Kabbage had simply approved the $940,000 loan. American Express’ Bernardini declined to comment further on pending litigation.
ProPublica
The House Select Subcommittee on the Coronavirus Crisis buttressed ProPublica’s findings. Fintechs “lacked fraud controls, chased high fees to the detriment of some borrowers and sometimes exploited their business relationships to arrange suspect loans for the companies’ own executives” and raked in millions off of PPP loans.
Fintech firms such as Blueacorn notably ignored the loan requests of smaller borrowers. They exploited a federal rule prohibiting borrowers from applying for a PPP loan elsewhere if they had already done so with one financial institution. Those most desperate for a PPP loan would make a request with Blueacorn, get locked in with the company in accordance with that federal rule, and never receive the money despite being approved for the loan.
The potential for fintech corruption is great.
