ICBA and the Bank Policy Institute said the FDIC should not issue deposit insurance to any industrial loan company applicant, including PayPal Bank, until Congress closes the ILC loophole.
Details: In a letter to the FDIC, ICBA and BPI said:
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The FDIC should pause processing ILC deposit insurance applications until the agency provides guidance regarding its approach to considering those applications.
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PayPal Bank’s application raises significant questions regarding certain factors the FDIC is required to consider in evaluating deposit insurance applications.
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An ILC significantly reliant on an affiliate presents heightened risk of noncompliance with important laws governing affiliate transactions, which are essential to protect the Deposit Insurance Fund.
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The FDIC must ensure ILCs abide by the anti-tying restrictions applicable to banks.
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.
New Legislation: ICBA last week expressed strong support for the Close the Shadow Banking Loophole Act introduced by Senate Banking Committee members John Kennedy (R-La.) and Andy Kim (D-N.J.) to close the ILC loophole.
More ICBA Advocacy:
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After the FDIC approved applications from Ford and General Motors to establish industrial loan companies, ICBA recently expressed serious concern with the approvals, citing the 2008 failure of GM’s ILC and its $17 billion bailout.
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In a national news release in December, ICBA expressed opposition to PayPal’s application to form an ILC.
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ICBA last fall published a white paper detailing why policymakers should close the ILC loophole.
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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 and fail to serve the convenience and needs of their community.