FDIC to issue proposal on ILCs at agency board meeting

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WASHINGTON — The Federal Deposit Insurance Corp. appears poised to address a thorny policy issue next week that could have broad implications for fintech firms that want to obtain a banking charter.

The FDIC announced late Wednesday that it will consider a proposal dealing with the parent companies of industrial loan companies, also known as industrial banks.

The FDIC board will meet the morning of Tuesday, March 17, according to the release.

ILCs have had a complicated history in Washington. Policymakers have frequently wavered over which firms can obtain the niche charter, which is most prevalent in Utah. Most recently, some fintech firms have seen the charter as a way to enter the banking system. The payments company Square and Rakuten — a Japanese e-commerce conglomerate — are among the firms awaiting FDIC approval to own ILCs.

The FDIC announced late Wednesday that it will consider a proposal dealing with the parent companies of industrial loan companies, also known as industrial banks.
The FDIC announced late Wednesday that it will consider a proposal dealing with the parent companies of industrial loan companies, also known as industrial banks.

The charter has stoked controversy since an application from Walmart for an ILC in 2006 prompted strong pushback from the U.S. banking sector, particularly community banks concerned that the retail giant would have an advantage over smaller, local financial institutions. The ILC is one of the last banking charters still legally available to nonfinancial parents.

The ILC debate went mostly dormant for almost a decade after Walmart withdrew its bid, but the issue reemerged in 2017 when Square applied for an ILC. Square would later reapply in December 2018; that application has sat in the FDIC’s queue for deposit insurance ever since.

Rakuten's ILC bid further magnified the issue and left the industry wondering when the FDIC would make a decision on pending applications.

FDIC Chairman Jelena McWilliams has repeatedly said her agency would consider the applications like any other in accordance with current laws.

“The law of the land is that ILCs do exist … and the job of the FDIC is to give each ILC application due consideration,” she said at her confirmation hearing in January 2018.

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