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Jack Dorsey’s Square Faces Local Headwinds in Bank Charter Bid

May 7, 2019, 9:30 AM

A San Francisco politician is worried Square Inc.'s bid to launch a bank will suck investment out of the city that helped the company grow.

Board of Supervisors member Matt Haney is calling on the Federal Deposit Insurance Corp. to require Square to invest in San Francisco as a condition for receiving federal deposit insurance for its proposed industrial bank in Utah.

“This is going to be a standard-setting charter, and for that reason we should be having a more open public dialogue about what companies like this should be viewing as their responsibility as they move forward with these charters,” said Haney, who represents the Mid-Market neighborhood where Square and many other tech companies are headquartered.

Haney and consumer groups also want the FDIC to hold public hearings on Square’s application.

FDIC Chairman Jelena McWilliams told Bloomberg Law April 24 she’s open to public hearings. “It’s a fair request,” she said. “Generally, by statute, you’re supposed to grant a public hearing if the questions cannot be resolved through the public comment process, but we’re not going to be bound necessarily just by that.”

Square’s subsidiary Square Capital is seeking an industrial loan company (ILC) charter in Utah, but the proposed bank also needs FDIC approval in order to accept customer deposits. The lender and payments company is widely seen as potentially forging a path for other fintechs to get into direct banking should it be successful.


Square’s bid has raised questions about how the Community Reinvestment Act, which requires banks to lend to low- and middle-income neighborhoods, should apply to a new wave of online-only banks.

The question is particularly acute for companies hailing from San Francisco and Silicon Valley, areas struggling with stark income inequality and a lack of affordable housing.

“There’s a lot that San Francisco does to support having Square here in our city, and there’s local impacts and there’s huge local needs,” Haney said.

Square’s community reinvestment plans fall short for Haney because the company wants to focus its investment dollars around its proposed bank headquarters in Salt Lake City.

The CRA generally requires banks to make loans in areas surrounding their headquarters or branches. Square, which doesn’t plan to have bank branches, is proposing to invest in other areas outside Salt Lake City, but only on a voluntary basis and if it meets a minimum “satisfactory” CRA rating.

The CRA policy doesn’t make sense to Haney. Companies pulling investment money out of their home communities to channel it somewhere else “should be a concern and lead to further questions as to why they made that decision and also why the law is set up in this way,” Haney said.

Haney is involved in another tech industry matter related to Square Chief Executive Officer Jack Dorsey, who co-founded Twitter and serves as that company’s CEO. Haney has called for the city of San Francisco to not renew an expiring payroll tax break provided to Twitter and a handful of other companies located in the Mid-Market area.

Consumer Groups

California consumer groups are also weighing in. More than 35 community, nonprofit small business and minority advocacy groups raised concerns with the company’s underwriting practices, disclosures and CRA plans in a joint Feb. 19 comment letter to the FDIC.

The groups, spearheaded by the California Reinvestment Coalition, said Square should be required to choose 10 to 20 metro areas where it does business and designate those as CRA assessment areas. The groups pointed to additional community investment requirements the Office of the Comptroller of the Currency placed on Charles Schwab in 1999 when it created a branch-less bank as precedent.

“It’s not impossible to find solutions to these types of dilemmas,” CRC Executive Director Paulina Gonzalez-Brito told Bloomberg Law.

Support for Square

Square’s bank application does have some supporters among civic leaders and commercial groups across the country, according to FDIC comment letters.

The mayors of St. Louis, Mo. and Albuquerque, N.M., a Cleveland, Ohio city council member, and the U.S. Black Chambers, among others, all voiced support for Square’s application, citing the company’s banking plans as potentially helping small and minority-owned businesses more easily access capital.

“Square Capital’s purpose is to make capital accessible to small businesses which have been underserved by the traditional financial system, and if approved for an ILC, we will fulfill all aspects of our CRA plan,” a Square spokeswoman told Bloomberg Law May 6 in an email. “We trust the FDIC to oversee and regulate ILCs as they have done successfully for decades,” the spokeswoman said.

In the Vanguard

If granted a charter, Square Capital would be able to expand its existing small business financing and consumer installment lending, funded in part by via customer deposits.

With average loans at $6,000, the company says it can serve a small business market typically overlooked by traditional banks and other lenders looking to issue higher-dollar financing.

Square Capital processed about 70,000 loans in the first quarter of 2019 worth $508 million, a 50 percent increase year over year, according to its May 1 shareholder letter.

Though Square was one of the first of fintech firms pursuing bank charters, it’s been joined by online-only Varo Bank offering high-yield savings products and brokerage startup Robinhood, both of which are pursuing full-service OCC charters.

If those companies, particularly Square’s lending arm, prove successful in obtaining charters, more companies may look to usher in a new trend of fintech-first banks.

To contact the reporter on this story: Lydia Beyoud in Washington at

To contact the editors responsible for this story: Michael Ferullo at; Seth Stern at