Our Position

Close ILC Loophole to Maintain Separation of Banking and Commerce


  • Corporate conglomerates or other companies engaged in commercial activities should not be allowed to own full-service or special purpose banks in violation of the longstanding U.S. policy of maintaining the separation of banking and commerce.

  • Congress should close the ILC loophole and stop the special purpose national bank charters because they not only threaten the financial system but create an uneven playing field for community banks.

  • The OCC should have explicit statutory authority from Congress before issuing any special purpose national bank charter for financial technology (fintech) companies. Any new federal charter should be subject to the same standards of safety, soundness, and fairness as other federally chartered institutions.

  • ICBA urges the Federal Reserve Board to adopt a uniform policy for Federal Reserve Banks that sets forth appropriate criteria for granting a state-chartered or a federally chartered special purpose bank access to the payment system.


Maintain the Separation of Banking and Commerce
The long-standing policy prohibiting affiliations or combinations between banks and non-financial commercial firms (such as Wal-Mart, Amazon, and Google) has served our nation well and was reaffirmed by the Gramm-Leach-Bliley Act (GLBA). Allowing large retail or technology conglomerates to own banks violates the U.S. policy of maintaining the separation of banking and commerce, jeopardizes the impartial allocation of credit, creates conflicts of interest, a dangerous concentration of commercial and economic power, and unwisely extends the federal safety net to commercial interests.

ICBA was the first national bank trade association to oppose Wal-Mart’s ILC application in 2005 and continues to exercise national leadership on banking and commerce separation with its opposition to the deposit insurance applications of SoFi Bank, Square Financial Services, Inc., Nelnet Bank, and Rakuten Bank America. The Square and Nelnet applications were approved by the FDIC in March 2020. The Rakuten Bank America application has been withdrawn, but the applicant has stated that it will refile its application with the FDIC. In addition, GM Financial Bank recently filed an application for deposit insurance with the FDIC as an ILC. All these applicants have holding companies and affiliates that engage in diverse, non-financial, commercial activities and chose the unique Utah ILC charter to avoid the legal prohibitions and restrictions on commercial activities under the Bank Holding Company Act.

ICBA believes that Rakuten, GM Financial Bank, and all other applicants for deposit insurance through ILCs should be subject to the same restrictions and supervision that apply to any bank holding company of a community bank. The FDIC rules for parent companies of ILCs do not provide the same amount of supervision that bank holding companies are subject to under the Bank Holding Company Act. Congress should close the ILC loophole because it threatens the financial system and creates an uneven playing field for community banks.

Congressional Authority is Needed Before the OCC Can Issue Special Purpose Charters
The OCC should have specific legal authority from Congress before it can issue a fintech charter, particularly since a District Court has ruled that the National Bank Act “business of banking” clause only allows the OCC to issue charters to depository institutions. The OCC is appealing that decision to the 2nd Circuit Court of Appeals. As part of the appeal, ICBA has filed an amicus brief in support of the New York Department of Financial Services’ position that the OCC can only issue de novo national bank charters to depository institutions.

Furthermore, it would be a violation of Section 2 of the Federal Reserve Act for the OCC to approve a national bank charter to a non-depository institution. Section 2 is clear that every national bank must be a member of the Federal Reserve System and every member of the Federal Reserve System must be an insured bank. ICBA opposed the Figure Bank de novo national bank application because as a non-insured depository, it would not be subject to the Bank Holding Company Act or the Community Reinvestment Act. Approval of this application would violate the Federal Reserve Act. Moreover, this new bank and charter would endanger the financial system and create an uneven regulatory playing field.

Special Purpose Depository Institutions (SPDIs) Present Novel and Heightened Risk
The Federal Reserve Board should direct the Reserve Banks not to grant non-traditional entities access to accounts or payments services until it has adopted uniform policy governing their exercise of discretion in granting such access. This policy, which should be developed in a transparent manner including notice and comment, should apply to requests submitted by SPDIs created under state law or through other means. It should take into account risks to the payment systems, its direct and indirect participants, and end-users associated with such requests.

Transparent and Consistent Standards for Fintech Companies Seeking a Federal or State Charter
ICBA supports the development of a fintech regulatory framework that is no less stringent than that which applies to insured depository institutions. The OCC as well as any state banking chartering authority should publish transparent capital and liquidity requirements for these firms with minimum levels for the designation “well capitalized.” This would promote a fair regulatory system, protect consumers, and support safety and soundness at these companies.

Staff Contact

Christopher Cole

Executive Vice President, Senior Regulatory Counsel

Washington, DC


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