The white paper “Industrial Loan Companies: Closing the Loophole to Avert Consumer and Systemic Harm” points out that the Bank Holding Company Act enables commercial and fintech companies to own or acquire ILCs chartered in several states that are not to federal oversight. As a result, these entities can function as the equivalent of full-service banks, which the ICBA argues is a violation of federal policy of maintaining the separation of banking and commerce. The ICBA also noted that ICBA fintechs including Square, SoFi, and Nelnet have sought industrial loan company charters under Utah law and filed deposit insurance applications with the FDIC, which gives them federal safety net protection for their depositors’ funds while avoiding the legal restrictions that banks must operate under as part of the Bank Holding Company Act.
“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.”