WASHINGTON — The Independent Community Bankers of America doubled down on its request for a moratorium on industrial loan companies, just a few days after Square became the second fintech this year to apply for the controversial bank charter.

The trade group had initially called for an ILC freeze in a July comment letter to the Federal Deposit Insurance Corp., responding to the ILC application by Social Finance.

But in a new letter dated Thursday, ICBA Chief Executive Camden Fine said Square's application "has significantly increased our concerns." Fine was also more specific, saying that the moratorium should be for two years.

“For safety and soundness reasons and to maintain the separation of banking and commerce, the FDIC should deny SoFi Bank’s application and impose a moratorium for at least two years on future ILC deposit insurance applications," said ICBA Chief Executive Camden Fine.

“For safety and soundness reasons and to maintain the separation of banking and commerce, the FDIC should deny SoFi Bank’s application and impose a moratorium for at least two years on future ILC deposit insurance applications, including any application by Square,” Fine said in the letter, which was addressed to FDIC Chairman Martin Gruenberg.

Square, which filed its application with the Utah Department of Financial Institutions and the FDIC last week, quickly responded, saying that its business plan strategy with a proposed ILC would not affect community banks.

“We believe that if [the ICBA were to] read it and evaluate it on its merits, they will see that we serve customers few community banks even reach,” a Square spokesperson said in a statement.

In its proposed business plan sent to regulators, Square said the ILC would primarily offer small-business loans.

"Square Capital is uniquely positioned to build a bridge between the financial system and the underserved, and an ILC will allow us to engage directly with regulatory bodies to continue these efforts,” the spokesperson said.

Community bankers have long fought the expansion of the ILC charter, most notably when Walmart and Home Depot applied to obtain such banks before the financial crisis.

Persistent controversy over the charter, stoked by Walmart's bid, led to two FDIC freezes on ILCs until the retail giant eventually withdrew. With the passage of the Dodd-Frank Act, Congress later imposed a three-year moratorium that ended in 2013. (The FDIC declined to comment on the ICBA's letter.)

Critics of the ILC charter in part say its exemption from bank holding company requirements allows companies, including nonfinancial parents, to operate a bank without Federal Reserve Board oversight.

“The ILC charter is nothing more than a loophole in the law to circumvent the legal prohibitions and restrictions under the Bank Holding Company Act,” Fine's letter said.

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Lalita Clozel

Lalita Clozel covers fintech regulation, anti-money-laundering, cybersecurity and the Federal Deposit Insurance Corp. in American Banker's Washington bureau.