Waters Urges FDIC Not to Grant ILC Charters Until Agency Finalizes Upcoming Rule

“[t]o the extent the FDIC issues a proposal for public comment that will change the rules for ILCs and their parent companies as soon as next week, I would encourage the FDIC not to approve any new ILC application until after the agency receives and considers feedback on the new regulatory proposal from experts, stakeholders, and Congress and finalizes any new rules,” wrote Chairwoman Waters.

In 2017, then-Ranking Member Waters wrote to the FDIC and called for the FDIC to hold at least one public hearing on Social Financial, Inc.’s (SoFi) application to establish an Industrial Loan Company (ILC). SoFi subsequently withdrew their application.

See below for the full letter text.

The Honorable Jelena McWilliams
Chairman
Federal Deposit Insurance Corporation
550 17th Street, NW
Washington, DC 20429

Chairman McWilliams,

I am writing regarding the Federal Deposit Insurance Corporation’s (FDIC) recent notice that it will be meeting on Tuesday, March 17, at 2:00 p.m., and one of the agenda items for discussion is a “Notice of Proposed Rulemaking, Parent Companies of Industrial Banks and Industrial Loan Companies.”[1] As I and other Financial Services Committee Members wrote you the other day,[2] this meeting comes at a critical time for our country as we confront the global spread of the coronavirus disease 2019 (COVID-19), including at least 1,629 confirmed cases and 41 deaths in the United States.[3] To date, the coronavirus has spread across 46 states and the District of Columbia.[4] I look forward to your response to our letter regarding this urgent crisis.

Regarding your potential meeting, I previously wrote the FDIC requesting a public hearing on a previous application by one company to obtain federal insurance for a state-chartered industrial loan company (ILC).[5] The company later withdrew its application, but the issues identified in my letter also apply to pending ILC applications before the FDIC, including concerns with regulatory oversight of ILCs generally, the need for strong consumer protection and reinvestment, and the importance of preserving the separation of banking and commerce.[6] Furthermore, it has been more than a decade since the FDIC approved federal insurance for an ILC application, so it is imperative that the FDIC proceed cautiously before setting a new precedent that may be difficult to reverse. Additionally, there is bipartisan interest and proposals from several Members in Congress to address some of the shortcomings in the current ILC regulatory framework that may be addressed in part by your agency’s new regulatory proposal.[7] 

Therefore, to the extent the FDIC issues a proposal for public comment that will change the rules for ILCs and their parent companies as soon as next week, I would encourage the FDIC not to approve any new ILC application until after the agency receives and considers feedback on the new regulatory proposal from experts, stakeholders, and Congress and finalizes any new rules.

Thank you for considering this request as well as the concerns and perspectives that a wide range of stakeholders have provided to your agency on the ILC applications pending before the agency. I look forward to your response.

Sincerely,



MAXINE WATERS
Chairwoman


Enclosures

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[1] FDIC, Sunshine Act Meeting (Mar. 11, 2020).
[2] Committee Press Release, Waters Leads Letters Calling on Regulators and Financial Institutions to Protect Americans and the Financial System from Impact of Coronavirus (Mar. 11, 2020).
[3] Center for Disease Control and Prevention (CDC), Coronavirus Disease 2019 (COVID-19) in the U.S., last updated Mar. 13, 2020.
[4] Id.
[5] See Committee Press Release, Waters Calls on FDIC to Hold Public Hearing on SoFi’s Application for Bank Charter (Aug. 25, 2017)
[6] Many of these concerns have been highlighted by community banks, community groups, government agencies, and other stakeholders and experts, both in general and in response to recent ILC applications. For example, see Board of Governors of the Federal Reserve System, FDIC and the Office of the Comptroller of the Currency, Report to the Congress and the Financial Stability Oversight Council Pursuant to Section 620 of the Dodd-Frank Act, (Sep. 2016), page 28; Government Accountability Office, Bank Holding Company Act: Characteristics and Regulation of Exempt Institutions and the Implications of Removing the Exemptions (Jan. 19, 2012); Independent Community Bankers Association, Industrial Loan Companies: Closing the Loophole to Avert Consumer and Systemic Harm (Mar. 2019); National Community Reinvestment Coalition, NCRC Comment Letter On Rakuten Charter Application (Aug. 30, 2019); American Bankers Association and Bank Policy Institute, ABA-BPI Joint Comment Letter Opposing Rakuten ILC Application (Aug. 30, 2019); and Americans for Financial Reform, Comment Letter Regarding SoFi (Jul. 19, 2017). See attachments for related materials.
[7] For example, see Politico, García bills would derail tech's financial ambitions (Nov. 12, 2019), Rep. Chuy Garcia’s Discussion Draft of "Close the ILC Loophole Act” considered at Committee hearing entitled, “Oversight of Prudential Regulators: Ensuring the Safety, Soundness, Diversity, and Accountability of Depository Institutions?” (Dec. 4, 2019); and Press Release, Sen. John Kennedy Files Legislation To Protect Consumers And Community Banks (Nov. 13, 2019).