SoFi Bails On Being A Bank

Social Finance, otherwise known as SoFi, the student loan online lender, is giving up on its hopes to become a bank for now.

According to a news report in Reuters, the company has withdrawn its application to get a bank license after senior executives – including co-founder and former Chief Executive Mike Cagney – have departed the company. After applying for bank licenses in Utah and with the Federal Deposit Insurance Corporation in June, SoFi wants to offer deposit accounts to customers.

“With SoFi’s leadership in transition, we’re withdrawing our application with the FDIC for now,” SoFi spokesman Jim Prosser said in a statement to Reuters. “A bank charter remains an attractive option when the time is right. This decision does not change our plans to make deposit accounts available through partner banks in the near future.”

Other executives to depart the company include Chief Financial Officer Nino Fanlo, ex-Chief Revenue Officer Michael Tannenbaum and June Ou, former chief technology officer. Cagney, who left in September, was forced to resign after allegations surfaced from two former SoFi employees that he engaged in sexual harassment, which prompted an internal review by the company. His departure has hurt the company’s application prospects, as regulators look at whether a company has a capable CEO before granting a license to accept deposits, noted Reuters.

SoFi had been seeking a special charter known as an industrial loan charter, which enables it to engage in most banking services, such as making loans and insuring deposits. That charter excludes it from supervision by the Federal Reserve and subjects it to the Bank Holding Company Act, noted the report.

In September, the Financial Times cited a close adviser and former chairman of the Securities and Exchange Commission as saying that Cagney’s scandal-prompted departure had killed its bank application. “This departure of Mike makes that a very questionable attainment,” said Arthur Levitt Jr., a former chairman of the SEC who began advising the company two years ago. Levitt also noted that the FDIC has turned down this type of application multiple times in the past. “So, for a company as aggressive as SoFi, I think the chances of that happening were slim. Now they become almost impossible.”