Issuing a white paper that details its objections to the industrial loan company (ILC) charter, the Independent Community Bankers of America (ICBA) this week urged Congress to “close the ILC loophole permanently.”
Leading payments provider Square has applied for an ILC charter in hopes of furthering the financial services it offers to its customers, enabling it to offer loans directly to consumers and businesses.
The ICBA specifically cited the application of Square and other fintech companies for the charter in its announcement, saying that the companies have submitted applications for ILC charters and subsequently for deposit insurance from the FDIC “to benefit from the federal safety net while avoiding the legal restrictions of the Bank Holding Company Act.”
“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,” ICBA President and CEO Romero Rainey said in a press release. “FDIC approval of new ILC deposit insurance applications would put the federal safety net, and ultimately the American taxpayer, at risk.”
Square had initially applied for the charter in 2017 and resubmitted its application in December after withdrawing it to address regulator concerns.
The ICBA paper outlines in detail the specific harms it says would result from granting an ILC charter to a company like Square. Industrial loan companies can be chartered in Utah and a few other states but can operate nationally. They are able to lend as banks, it said, while being exempt from the definition of a “bank” as outlined by the Bank Holding Company Act.
According to the ICBA, one of the objectives of that act was to prevent “concentration of economic power.”
“Commercial company ownership of ILCs will effectively combine banking and commerce, contrary to long standing American economic policy,” the organization wrote.
“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,” 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.”