Two Democratic senators have urged regulators to ban the use of the Federal Deposit Insurance Corp. name or logo by firms that provide products only eligible for pass-through FDIC insurance and establish clear rules for banking-as-a-service companies.
In a letter sent Wednesday, Sens. Elizabeth Warren, D-MA, and Chris Van Hollen, D-MD, highlighted that the partnerships between banks, BaaS providers like Stripe, Finastra, Synapse, and Marqueta and fintechs like Venmo, Cash App, Yotta, and Chime pose a threat to consumer safety and soundness.
They asked the heads of the Federal Reserve, Office of the Comptroller of the Currency, and the FDIC to exercise their power under the Bank Service Company Act and the Federal Deposit Insurance Act to directly monitor the organizations and bring enforcement action against the companies if they violate the established rules.
“The rapid growth of these partnerships risks harming consumers while posing a broader threat to the stability of our banking system and the economy,” the senators wrote. “The risks are clear.”
Revenue from BaaS is expected to reach $17.3 billion in 2026, according to the letter.
Bank-fintech partnerships “can involve elevated risks,” including providing misleading or insufficient information to end users, the senators wrote.
Warren and Van Hollen pressed the heads of the federal agencies to prohibit the use of misrepresentations related to FDIC insurance. Companies like Yotta, they wrote, put more emphasis on “FDIC-insured” in large text on their websites while explaining what the term means – that the money is held in an account eligible for pass-through FDIC insurance of up to $250,000 through the partner bank – in smaller text.
