Sexual harassment scandal may cost SoFi a banking license

Inside Subprime: September 20, 2017

By Caroline Thompson

Online lender SoFi has been in hot water since early August, when a former employee filed a lawsuit alleging he was fired for calling attention to sexual harassment he witnessed against female coworkers. In the month since these allegations came to light, SoFi CEO Mike Cagney, who is at the center of the scandal, has resigned, stating that the “negative press have become a distraction from the company’s core mission.”

But just before these claims exploded into national news, SoFi filed a bank charter application with the Federal Deposit Insurance Corporation in the hopes of gaining a banking license. According to a Wall Street Journal article from June, the move was “one of the most advanced efforts by a financial-technology startup to obtain the power to offer bank products and services in exchange for stricter regulation.”

It’s been about a decade since a loan company was approved for a banking license, so the odds of approval for SoFi weren’t great to begin with. Now? They’re nearly nonexistent.

Ben McLannahan, a former chairman if the Securities and Exchange Commission, told The Financial Times that “SoFi’s application to become a bank has almost no chance of approval in the wake of a sex scandal that forced out its chief executive.”

According to an industry insider who spoke with Reuters: “The FDIC won’t act in a vacuum. For most regulators, management is the single most important issue.”

A banking license would allow SoFi to offer bank products and services, like checking accounts, savings accounts and credit cards, and would subject the company to much stricter regulations in return. Right now, SoFi offers a variety of student loans, mortgages and personal loans, and it in the wake of this scandal, it doesn’t seem likely that SoFi could become a bonafide bank anytime soon.

After all, the banking industry doesn’t need another blemish on its record, it’s already got Wells Fargo.

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