Klarna announced it has submitted applications to the Utah Department of Financial Institutions and FDIC to establish Klarna Bank USA, a Utah-chartered industrial loan company.
Details: Klarna, a buy now/pay later lender that has had a European banking license since 2017, said an ILC charter would allow it to offer American consumers digital tools and traditional banking products.
ICBA View: ICBA believes ILCs present outsized risks to the Deposit Insurance Fund and consumers due to their exemption from consolidated supervision by the Federal Reserve under the Bank Holding Company Act and ownership by non-financial parent companies.
Loophole Background: A loophole in the Bank Holding Company Act allows commercial and fintech companies to own or acquire ILCs chartered in a handful of states without being subject to federal consolidated supervision, leaving a dangerous gap in safety and soundness oversight and introducing unnecessary systemic risk into the banking system.
ICBA Advocacy:
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ICBA and state banking associations recently met with FDIC Chairman Travis Hill to discuss concerns about ILCs.
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After the FDIC in May approved a deposit insurance application submitted by Stellantis Financial Services to establish a Utah-chartered industrial loan company, ICBA expressed serious concern with the approval, citing the risks posed by the regulatory loophole.
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ICBA and 38 state banking associations recently urged the FDIC to reconsider its approval of Edward Jones’s ILC application, noting the St. Louis-based investment firm has more than 16,000 physical locations across North America that could function as de facto bank branches.
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ICBA last year published a white paper detailing why policymakers should close the ILC loophole, which allows ILCs and their parent companies to skirt regulatory oversight.
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ICBA in September told the FDIC that it has a statutory duty to reject ILC applications that pose undue risks to the DIF.
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ICBA continues to strongly support the Close the Shadow Banking Loophole Act, legislation introduced by Senate Banking Committee members John Kennedy (R-La.) and Andy Kim (D-N.J.).