A Small Business Administration lending scandal that has been ongoing for over a year seems to be reaching a conclusion as Independence Bank in East Greenwich, Rhode Island moves towards quietly self-liquidating. The bank is terminating its deposit insurance and surrendering its charter, with the FDIC approving the liquidation plan.
While Independence did not admit wrongdoing, it will pay $3.5 million to borrowers who were alleged to have been charged improper fees for SBA 7(a) loans. The bank’s Chairman, Thomas Bain, did not respond to requests for comment.
The consent order signed on Jan. 14 appears to resolve the legal clashes over the FDIC’s regulatory powers to handle liquidations. This resolution comes after Independence had sued the FDIC for blocking its initial attempt to cease operations.
Independence gained most of its SBA 7(a) loans through referrals from a third party, leading to borrowers being burdened with more debt than they could repay. As a result, many defaulted on their obligations, prompting the SBA to suspend Independence’s participation in the 7(a) program.
Although shareholders are unlikely to receive much money from the liquidation, this voluntary process allows directors and officers to avoid personal liability to the FDIC fund. The final resolution requires Independence to handle disposal of remaining SBA loans in its portfolio before the bank can proceed with its self-liquidation.
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