While the Office of the Comptroller of Currency’s (OCC) fintech banking charter is going to be taken up by the Supreme Court, conversations were kicked up this week regarding a banking charter of another sort, the Industrial Loan Charter (ILC).
The American Banker wrote an extensive article on the topic this week. You may recall that this was a hot topic back in 2005 when Walmart filed for an ILC, the banking industry called foul and Walmart withdrew its application.
Now a new retailer has applied, the online marketplace Rakuten:
We see some serious issues and dangers in Rakuten’s application,” said Wayne Abernathy, executive vice president for financial institutions policy and regulatory affairs at the American Bankers Association. “There’s always a danger when you allow nonfinancial services to get into banking. Rakuten crossed that line and didn’t try to hide the fact.”
The ABA is opposing the bid even though it counts ILCs among its members and is generally supportive of the charter. The group submitted a joint letter to the FDIC in August with the Bank Policy Institute expressing its concerns about the proposed Rakuten Bank America.
How this application is handled will provide some insights to other ILC applicants and want-to-be applicants, including Square:
Several firms are waiting to see how the FDIC approaches the issue, said a regulatory lawyer who spoke anonymously, citing potential conflicts.
“It’s all going to come to a head when the FDIC moves forward. That’s when Congress gets involved,” the lawyer said. “As soon as you have a target, this will be a big issue on the Hill.”
But advocates of the ILC industry, which is based mostly in Utah, suggest that bankers’ objections are merely competitive, and that firms seeking a charter are following a route with a strong legal basis.
Advocates for ILCs make the point that it is better to have non-banks be required to get a charter and answer directly to regulators rather than providing financial services without any oversight or hiding behind a sponsor bank:
“Here’s a company that wants to provide banking services to its customers in America that’s willing to run through the front door, get a banking charter and subject themselves to the same regulations as every other bank,” said Howard Headlee, president of the Utah Bankers Association and a longtime advocate for the use of ILCs.
Overview by Sarah Grotta, Director, Debit and Alternative Products Advisory Service at Mercator Advisory Group
