Fintech Company Avoids Murky Regulatory Landscape by being the First U.S. Fintech Company to Acquire a Regulated Bank

For the first time, a U.S. fintech company is acquiring a regulated U.S. bank, which will give it access to a stable and cheaper source of funding – as well as a national bank charter.

On February 18^th, LendingClub, one of the largest providers of personal loans in the U.S., announced that it will pay $185 million in cash and stock to acquire Radius Bancorp, an online bank with about $1.4 billion in assets. The deal will allow LendingClub to offer an array of new products and diversify its revenue stream, by combining one of the leading digital loan providers with one of America’s fastest growing digital banking platforms.

LendingClub is the first fintech company to acquire a chartered bank as an entry into banking, instead of applying for a national bank charter. Given the murky regulatory landscape, it may be a smoother path.

On July 31, 2018, the OCC announced that it would start accepting applications for special purpose national bank charters (“SPNB Charters”) from non-depository fintech companies engaged in the business of banking. The goal was to streamline the licensing process, by allowing the OCC to regulate fintech companies with a SPNB Charter. That way, fintech companies would not have to opt between existing in the gray area where it is unclear whether they need a license, or being bogged down by the process of obtaining licenses from regulators in every state where the company operates.

State regulators responded to the OCC’s announcement with litigation. The Conference of State Bank Supervisors and the New York State Department of Financial Services both filed lawsuits against the OCC, arguing that the SPNB Charters were beyond OCC’s statutory authority. In May of 2019, the New York federal district court denied the OCC’s motion to dismiss the lawsuit. In doing so, the court found that the term “business of banking,” as used in the National Banking Act, meant that only depository institutions were eligible to receive national bank charters from the OCC, and thus the OCC could not issue SPNB Charters to non-depository fintech companies. In October of 2019, the parties stipulated to entry of final judgment in favor of the New York Department of Financial Services, and agreed to set aside the OCC regulation that would allow non-depository fintech companies to seek a SPNB Charter. The OCC has appealed the decision, leaving an uncertain federal regulatory future for non-depository fintech companies.

By acquiring Radius Bancorp, LendingClub should be able to avoid the murky waters and sail smoothly into a new position in the marketplace, as an online lender and bank.