WASHINGTON — The Independent Community Bankers of America is formally opposing a bank charter application by the payments processor Square, accusing it of trying to “avoid” certain “legal prohibitions and restrictions.”

In a letter to the Federal Deposit Insurance Corp. on Tuesday, Chris Cole, the group's executive vice president and senior regulatory counsel, argued that Square should not be allowed to obtain a Utah-chartered industrial loan company and reiterated the call for a two-year moratorium on all ILCs.

“Furthermore,” said Cole, “Congress should immediately address this issue and permanently close the ILC legal loophole before it is too late and we have huge commercial or technology firms like Amazon, Google or Wal-Mart owning FDIC-insured ILCs.”

Chris Cole of ICBA
“The holding company of Square and its affiliates already engage in a diverse set of commercial activities including a food delivery business, a software business, and an online hardware store,” said Chris Cole, an executive vice president at the ICBA. Bloomberg News

In its ILC application last month, Square said it planned to open a bank in Salt Lake City, capitalized at $56 million and focused on offering small-business loans to its customer base. To run the bank, Square will also have to obtain deposit insurance from the FDIC.

But an ILC would allow Square to avoid restrictions of its nonfinancial activities under the Bank Holding Company Act, prompting opposition from the ICBA.

“The holding company of Square and its affiliates already engage in a diverse set of commercial activities including a food delivery business, a software business, and an online hardware store,” said Cole.

“For safety and soundness reasons and to maintain the separation of banking and commerce, the FDIC should deny both deposit insurance applications,” he added, referring also to the online lender Social Finance’s ILC application in June.

In a statement, Square said its application "reflects Square's ability to build a bridge between the financial system and the underserved."

"We believe each and every ILC application should be considered on its individual merits, not ICBA's inaccurate view of ILCs," a spokesperson said. "We trust the FDIC, which has direct oversight and regulation of all ILCs, to effectively assess our application's safety, soundness and compliance with applicable laws before granting a charter."

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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.