U.S. Sen. Sherrod Brown (D-OH) has raised concerns over financial company Tellus's alleged misguided practices and false claims.
"I urge the FDIC to take a closer look at Tellus and its operations," Brown, chairman of the Senate Banking, Housing and Urban Affairs Committee, wrote in a letter to the FDIC chairman Martin J. Gruenberg. "Although Tellus claims that it is not a bank, a fact its website repeatedly reminds customers of, I am concerned that Tellus's practice of marketing high-interest deposits to fund real estate loans may give consumers the false impression that their money is as safe as a deposit at an FDIC-insured bank."
The letter states that using customer deposits, Tellus extends mortgage loans and provides its customers with high-interest rates, funded by the interest income generated from their real estate-lending activities. These rates are notably higher than those offered by conventional banks, making them appealing to customers. However, the article cautions that Tellus heavily relies on risky investments, such as loans to real estate speculators and distressed borrowers, that are not advertised. Consequently, depositors may be exposed to potential losses due to the company's business model.
In a letter addressed to Tellus's President and Chief Technology Officer Jeromee Johnson, Brown raised several concerns and requested specific information. Brown formally requested that Tellus provide a detailed description of its services to customers, including its policies and procedures for protecting customer funds in the event of insolvency or bankruptcy. Brown also requested that Tellus describe its risk assessment model for extending real estate loans, including assessing the risks posed by the current decline in property values in the San Francisco Bay Area.
Furthermore, Brown asked whether Tellus had partnerships with JPMorgan Chase and Wells Fargo in the past, as they have claimed, and if so, whether these partnerships still exist. If they no longer exist, Brown requested that Tellus describe its actions to update customers about the change. Finally, Brown asked about Tellus' measures to communicate with customers to ensure they understand that their accounts with Tellus are not FDIC-insured.