RollCall: banks want US Congress to stop fintech industrial charters

A bank industry group is lobbying the US Congress to block financial technology firms, such as online lender Social Finance and payment processor Square, from obtaining an obscure form of a state bank charter that would let them operate nationally with little federal supervision.

The Independent Community Bankers of America last week distributed a policy paper around Washington calling for an immediate moratorium on providing federal deposit insurance to industrial loan companies, or ILCs, which are chartered by only a few states — most notably Utah.

Now, the ICBA says it’s presented the report to FDIC Chairwoman Jelena McWilliams and is set to discuss the issue with members of Congress in the days ahead, focusing on members of the Senate Banking and House Financial Services committees.

The group says industrial charters are a loophole in the banking law that Congress should close. Fintechs that own state-chartered ILCs would not be subject to supervision by the Federal Reserve and would not have to divest any nonbanking-related commercial activities, “leaving a dangerous gap in safety and soundness oversight,” ICBA said.

The fintech industry is pushing back, in an emailed statement to RollCall, Nat Hoopes, executive director of fintech industry group Marketplace Lending Association said: “The industrial loan company charter is a long-established and well-regulated state banking option that has proven very durable, and today’s fintech companies should be able to apply,” he said.

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