Senator Brown is calling on the FDIC to review fintech Tellus’ business practices

The chairman of the Senate Banking Committee is asking the Federal Deposit Insurance Corp. take a closer look fintech start-up Tellus claims it can offer prices higher than typical savings accounts.

In a letter to FDIC Chairman Martin Gruenberg, Sen. Sherrod Brown, D-OH, expressed concern about Tellus’ high-interest savings accounts despite not being insured by the FDIC. He urged the US regulator to review and monitor fintechs’ business practices and risk management procedures for the safety of customers.

“Although Tellus claims it is not a bank, a fact its website repeatedly reminds customers, I am concerned that Tellus’ practice of marketing high-interest deposits to finance home loans may give consumers the false impression that their money is equally safe as a deposit in an FDIC-insured bank,” Brown wrote in his letter.

Founded in 2016, Tellus raised $16 million in a seed round in November, led by Andreessen Horowitz, to focus on scaling the team and continuing to build out the platform. The fintech claimed in a statement that it offers an alternative method for people to accumulate interest “by leveraging the US single family loans to give users higher returns than typical savings accounts, along with access to regular withdrawals.”

A recent article in Barron’s that raised red flags about fintech’s potential risks to customers prompted Brown to contact the FDIC.

In the letter, Brown outlined Tellus’ business model and its marketing practices, which he said often mislead consumers by giving them the false impression that their money is in safe hands.

Tellus uses customer deposits to extend mortgages and then offers high interest rates to customers from the funds generated by their real estate loans, he noted. These higher-than-normal interest rates appear lucrative to customers who are unaware of the risks associated with it, Brown said, citing the Barron’s article.

The article says Tellus relies on unannounced risky investments, including loans to real estate speculators and distressed borrowers that could expose depositors to losses, according to Brown. Although the fintech claims it invests in “borrowers in some of the nation’s most stable real estate markets,” it does not specify that its lending market is primarily the San Francisco Bay Area — a region that is seeing a decline in property values, he highlighted in his letter.

“This decline could pose increased risk to Tellus depositors if Tellus borrowers default on their loans,” Brown wrote.

Although Tellus reminds its customers that it is not a bank, the purported partnership with JPMorgan Chase and Wells Fargo does not exist, according to the Barron’s article, Brown said.

There has been widespread anxiety about non-FDIC-insured accounts, prompting people to withdraw millions of dollars from regional banks since mid-March to protect their assets, including failed Silicon Valley Bank and First Republic Bank .

Brown reminded Gruenberg of the agency’s previous letters to crypto companies, which made false and misleading statements about FDIC insurance — a common practice in that area, according to Brown.

The bank committee chairman also sent a letter to Jeromee Johnson, president and CTO of Tellus. He submitted some inquiries regarding the fintech’s services, policies and procedures to protect customer funds, risk assessment model and the partnership with JPMorgan Chase and Wells Fargo. Brown asked Johnson to provide a response by May 16.

“I have received the request for information from Senator Brown. We are also aware of Barron’s article that raised the senator’s concern,” Johnson said in a written response to TechCrunch. “While many of the facts in that article are true, we strongly disagree with his portrayal of our business as misleading or unduly risky .”

“Tellus is a startup that is on a mission to improve the financial health of American consumers. We are grateful for — and share — the senator’s concern for the well-being of our customers. Tellus and I will cooperate fully with the request for information,” he added .

Tellus did not respond to Banking Dive’s request for comment by press time.