Earlier this year it forced Lineage Bank of Franklin, Tenn., to terminate all “significant” partnerships with fintechs. The FDIC also determined that New York’s Piermont Bank must get written approval from its board before adding new fintech partners. The message is clear: Any bank that goes into business with a fintech company will face the regulatory gauntlet.
It’s difficult to read these statistics and conclude that the FDIC isn’t trying to bully banks through consent orders and “cease and desist” demands. In doing so, the FDIC is engaged in de facto rulemaking while bypassing the notice and public comment period legally required under the Administrative Procedure Act.
The FDIC’s assault on fintech isn’t confined to enforcement. The agency in April took the unusual step of submitting a friend-of-the-court brief in a case interpreting Colorado state law. Fintech trade groups have sued Colorado over a law, set to take effect in July, that they say would reduce competition by capping interest rates on loans made by state-chartered banks based in the 49 other states. The law would hit banks with fintech partnerships especially hard because it targets products unique to their firms, such as short-term credit and buy-now-pay-later loans.
Leading the anti-fintech charge is FDIC Chairman Martin Gruenberg, who hasn’t tried to conceal his contempt for the industry. In a recent speech, he referred to fintech firms as “shadow banks” while claiming that nonbank lenders fueled the 2008 financial crisis.
The agency’s actions are déjà vu. During Mr. Gruenberg’s stint leading the agency during the Obama administration, the FDIC joined the Justice Department in a program called Operation Choke Point. The agencies’ goal was to deny banking services to businesses they deemed undesirable, such as payday lenders, gun manufacturers and independent ATM operators. Congress never authorized such action, meaning that unelected and unaccountable bureaucrats effectively put their thumbs on the scale to say with whom banks could—and couldn’t—do business.
After significant pushback, the FDIC and Justice Department claimed to have abandoned the program in August 2017. Considering the damage it did to their institutional reputations, one would think the FDIC wouldn’t try a similar scheme again. If only.
Mr. Gruenberg hasn’t enjoyed smooth sailing since returning to his post. The Journal revealed in a series of articles last fall that the agency has a toxic workplace, with widespread allegations of harassment, discrimination and other offenses. Members of the House Financial Services Committee in November launched an inquiry to evaluate the claims. On Tuesday an audit from the law firm Cleary Gottlieb Steen & Hamilton, commissioned by the FDIC, revealed that more than 500 people—mostly current employees—had reported “experiences of sexual harassment, discrimination, and other interpersonal misconduct” to the firm’s hotline.
It isn’t implausible that Mr. Gruenberg might be seeking to distract from the agency’s scandals by announcing a slew of enforcement actions that please the far-left elements of the Democratic Party. He could use some allies in Congress. Sen. Sherrod Brown (D., Ohio), chairman of the Banking Committee, has been one of the loudest critics of fintechs, accusing the companies of putting “people’s hard-earned money at risk” by acting like banks without offering the same level of “consumer protections and safeguards.”
Regardless of the motivation, the FDIC’s assault on fintechs is part of an alarming trend from the Biden administration. Whether it be the Federal Communication Commission’s imposing net neutrality on broadband providers, the Consumer Financial Protection Bureau’s imposing price caps on bank fees, or the Federal Trade Commission’s banning almost every noncompete agreement in America, government agencies are granting themselves sweeping discretionary powers in constitutionally dubious ways. In so doing, they threaten the rule of law, suppress economic growth and limit consumer choice. That should worry all Americans.