Cross River Bank ordered to correct ‘unsafe’ lending practices

Dive card:

• Fintech-friendly Cross River Bank engaged in “unsafe and unsound” practices related to fair lending laws and regulations, the Federal Deposit Insurance Corp. alleged. consent order published last week.
• The Fort Lee, New Jersey-based lender failed to “establish and maintain internal controls, information systems and sound credit underwriting practices” in 2021, the regulator said in an order dated March 8.
• Cross River, which neither admitted nor denied the allegations, is not allowed to enter into new partnerships with third parties or offer new credit products without the FDIC’s approval, according to the consent order.

Diving Insights:

As part of the order, Cross River agreed to strengthen oversight and monitoring of internal controls, information systems, credit underwriting practices and internal audit systems related to consumer protection laws.

The allegations in the FDIC’s consent order stem from practices the regulator said it identified in a May 3, 2021 consumer compliance report on investigation.

The FDIC ordered the bank to submit to its office in New York a list of its credit products, as well as the credit products offered by the third parties it works with.

The regulator also ordered the bank to submit a fair lending resource survey, carried out by an independent third party.

In a statement to Banking Dive, a bank spokesperson said the order does not place any restrictions on Cross River’s existing fintech partnerships or the credit products it offers in partnership with them.

“We do not expect the order to have any meaningful impact on our growth trajectory,” the spokesperson said.

Many of the improvements required under the order have been completed or will be completed in the coming months, the spokesperson added.

The $9 billion-asset bank is a banking-as-a-service powerhouse, providing the technology infrastructure for a deep portfolio of payments, fintech and crypto firms.

In a statement Thursdaya day before the FDIC’s consent order was made public, Cross River CEO says Gilles Gade noted how regulators are monitoring firms serving fintechs amid the recent volatility in the banking sector.

“Regulatory scrutiny of banks in general is increasing and the incidents with it [Silicon Valley Bank] will only expand these efforts with a specific focus on banks that support fintech,” he said. “Cross River is the largest of these banking institutions, and as such we have regulatory examiners that review some elements of our business on an ongoing basis. We view our compliance capability as a strategic advantage and are proud to lead our industry in maintaining the highest levels of compliance, transparency and accountability.”