Lineage Bank in Franklin, Tennessee, was slapped with a regulatory action in connection with its fintech partnerships, the latest in
Under a consent order with the Federal Deposit Insurance Corp., the $290 million-asset bank must implement a board-supervised strategic overhaul that boosts its risk controls, increases its capital and results in the offboarding of some of its fintech partners.
The order took effect on Jan. 29. It was first reported on Friday by Fintech Business Weekly and made public later in the day.
Regulatory scrutiny of banks' banking-as-a-service programs has increased in the last two years. Federal agencies have been emphasizing through enforcement actions that
Blue Ridge Bank in Virginia, which has been hit with
Jonah Crane, a partner at the advisory and investment firm Klaros Group, said in an interview last month that he expects every bank with a banking-as-a-service line of business to see some level of regulatory action over the next year.
Many banks dove into the sector to add deposits and fee revenue but didn't appropriately allot resources for staff and technology, Crane said. Cross River Bank and First Fed Bank are among the financial institutions that have had to rein in their banking-as-a-service businesses due to compliance failures.
Lineage was founded when father-and-son duo Richard and Kevin Herrington acquired a small, local bank and began ramping up its banking-as-a-service business in 2021.
Since then, the bank has partnered with Synctera and Synapse,
In a January 2023 blog post, the bank said that "due to our partnerships with organizations like Synctera and Synapse, we've been able to tap into the market with great success. We look forward to expanding upon this BaaS growth here in 2023."
The FDIC is now requiring Lineage to limit annual growth of assets and liabilities to under 10%, terminate "significant" fintech partnerships and increase its Tier 1 capital.
Lineage did not respond to requests for comment. The FDIC declined to comment.
The Virginia bank is one of three that have been publicly admonished by regulators this week due to problems related to their banking-as-a-service programs.
A Synctera representative said in an email that it's "unfortunate to see [Lineage] leaving the fintech space," and that the bank is helping transition fintech partners to new banks. Synapse declined to comment.
In the wake of the FDIC's action, Lineage has shaken up its leadership team, tapping Jeffrey Hausman as its chairman, and naming Carl Haynes, who was previously chief banking officer, as CEO, the Nashville Business Journal reported on Thursday. Hausman and Haynes replaced Richard and Kevin Herrington, who founded Lineage in 2020 through the acquisition of Citizens Bank and Trust Company.
Konrad Alt, a partner at Klaros Group, told American Banker in November that banks should look at recent regulatory actions as providing a blueprint for their own banking-as-a-service risk strategies.
"The message to banks that are in this space is that if you want to be providing banking as a service, you need to have first-class compliance and risk management," Alt said. "That's a message the regulators have been communicating pretty consistently."
