WASHINGTON–The Independent Community Bankers of America is calling on Congress to close a loophole in the law that allows commercial and fintech companies to offer banking services.
In a new white paper, “Industrial Loan Companies: Closing the Loophole to Avert Consumer and Systemic Harm,” the ICBA is calling on the Federal Deposit Insurance Corp. to impose an immediate moratorium on approving deposit insurance for these companies and urges Congress to close the ILC loophole permanently.
“As ICBA’s white paper recounts, a loophole in the Bank Holding Company Act allows commercial and fintech companies to own or acquire ILCs chartered in a handful of states without being subject to federal consolidated supervision, leaving a dangerous gap in safety and soundness oversight,” the association said.
Further, commercial ownership of ILCs—which are the functional equivalent of full-service banks—violates the longstanding U.S. policy of maintaining the separation of banking and commerce, the ICBA said.
“The industrial loan company loophole allows commercial interests to own full-service banks while avoiding key regulations and consolidated supervision by the Federal Reserve—threatening the financial system and creating an uneven regulatory playing field,” ICBA President and CEO Rebeca Romero Rainey said. “Any company that wishes to own a full-service bank should be subject to the same restrictions and supervision that apply to any other bank holding company. To support a safe and sound financial system and to maintain the separation of banking and commerce, the FDIC should reinstate the moratorium on ILC applications and Congress should close this loophole for good.”
The ICBA said it is publishing the white paper as technology companies such as Square, SoFi, and Nelnet have sought industrial loan company charters under Utah law and filed deposit insurance applications with the FDIC to benefit from the federal safety net while avoiding the legal restrictions of the Bank Holding Company Act. ICBA’s white paper argues that these firms should be subject to the same restrictions and supervision as any other bank holding company.
‘Stop & Think’
“In the new era of big data, tech conglomerates, and artificial intelligence, we should stop and think before giving these companies further reach into the economic lives of Americans,” Romero Rainey said. “FDIC approval of new ILC deposit insurance applications would put the federal safety net, and ultimately the American taxpayer, at risk.”
The paper can be found here.