FDIC Accuses Cross River Bank of Engaging in Unsafe Lending Practices
Cross River Bank, known for providing banking services to fintech and cryptocurrency firms like Visa and Coinbase, has been accused of engaging in “unsafe” or “unsound” banking practices related to its compliance with fair lending laws and regulations in 2021. The allegations were made public in a consent order executed with the bank on March 8, which Cross River accepted without admitting or denying the violations found in the 2021 report of examination.
However, the bank is yet to confirm or deny the allegations. The Federal Deposit Insurance Corporation (FDIC) has requested that Cross River “self-correct” and address weaknesses in its lending activities. The bank is required to take immediate action to increase its supervision over the “system of internal controls, information systems, credit underwriting practices, and internal audit systems related to the consumer protection laws and regulations.”
Cross River must also create processes to avoid future recurrence of the violations and promptly “self-correct” any fair lending law violations. It must also “appropriately address” the deficiencies and weaknesses identified in its lending activities.
The bank must submit a fair lending resources study and report outlining its size and growth plans, the current and anticipated number of credit products, and their respective volumes by May 7. The report must also detail the number of decisions made on behalf of the bank by third parties in relation to credit applications, credit transactions, and the promotion of credit products offered by Cross River Bank.
Cross River CEO Emphasizes the Bank’s Compliance Capability
Cross River CEO Gilles Gade released a statement on April 27, just one day before the consent order was made public, without mentioning the FDIC allegations. He emphasized that the bank upholds the “highest levels of compliance” and highlighted that regulatory scrutiny will only get tougher for banks that support fintech following the collapse of Silicon Valley Bank.
Gade stated that Cross River is the largest of these banking institutions, and regulatory examiners review some elements of the business on a continuous basis. He added that the bank views its compliance capability as a strategic advantage and is proud to lead the industry in maintaining the highest levels of compliance, transparency, and responsibility.
Circle Partners with Cross River for Banking Services
The order was executed with the bank only days before Circle, the issuer of USD Coin (USDC) partnered with Cross River for banking services on March 13. Circle had sought the new partnership after the collapse of its previous provider, Silicon Valley Bank.
Conclusion
FDIC’s allegations against Cross River Bank are serious and could result in significant penalties if the bank is found guilty of engaging in unsafe or unsound banking practices. The bank’s failure to confirm or deny the allegations suggests that it may have something to hide. Cross River’s partnership with Circle for banking services only days after the consent order was executed could raise questions about the due diligence conducted by Circle before entering into the partnership. It remains to be seen how this situation will unfold, but it serves as a reminder of the importance of compliance with banking regulations.
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