Tennessee Bank Hit with FDIC Consent Order Over BaaS Business
Under the consent order, Lineage Bank must implement an enhanced risk management program overseen by its board of directors, increase capital levels, and let go of some fintech partners. Lineage Bank has entered a consent order with the Federal Deposit Insurance Corp. related to its financial technology partnerships, the agency declared in its monthly list of enforcement actions last week.
Under the consent order, which took effect Jan. 29, the Franklin, Tennessee-based lender must implement an enhanced risk management program overseen by its board of directors, increase capital levels, and let go of some fintech partners. Lineage partnered with fintech enablers Synctera and Synapse to provide banking-as-a-service solutions to its customers.
“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,” Lineage stated in a January 2023 blog post. The bank has experienced significant growth since 2020, with assets rising from $27 million to nearly $300 million at the end of 2023, according to FDIC call report data.
The order asks the bank’s board to develop and submit a general contingency plan detailing how Lineage Bank “will administer an effective and orderly termination with significant third-party FinTech partners” within 60 days of the order’s effective date.
Additionally, the bank needs to hire a third party to evaluate the management structure and how the bank staff monitor the risk management of Lineage Bank’s BaaS line of business. Based on the evaluation results, the lender will then be required to establish and implement a staffing and action plan to address any weaknesses identified in the report.
The FDIC forbade the bank from entering any new lines of business or expanding its current business in a way that would yield annual growth of 10% or more in total assets or total liabilities without the agency’s prior written approval.
The consent order also dictates that Lineage Bank submit a written capital plan to achieve and maintain a tier 1 leverage capital ratio equal to or greater than 12.5%. It should also achieve and maintain a total risk-based capital ratio equal to or greater than 16%, the agency said.
Lineage recently shook up its C-suite by appointing Jeffrey Hausman as its chairman and naming Carl Haynes, the bank’s chief banking officer, as its CEO, according to the Nashville Business Journal. Lineage did not reply to a request for comment by press time.