ICBA Asks Regulators to Close FinTech FDIC “Loophole”

With the 2020 election cycle already kicking into high gear, several of the hot topics being touted on the campaign trail revolve around technology. From fears over automation impacts to calls to break up Silicon Valley giants, there are those on both sides calling for greater regulation on emerging technologies. Simiarly FinTech startups are also facing pushback on their expansion plans, with one group of bankers now taking their efforts to Washington and asking for regulators to close a "loophole." As Roll Call reports, The Independent Community Bankers of America has been distributing a policy paper titled “Industrial Loan Companies: Closing the Loophole to Avert Consumer and Systemic Harm” and plans to speak with members of Congress about their cause in the coming days. The group is calling for regulators to renew a moratorium on loan companies receiving federal deposit insurance. This comes as FinTechs including Square and SoFi have previously applied for FDIC approval. In their report, the ICBA writes, “In the new era of dominant Big Data, social media and e-commerce conglomerates, artificial intelligence, and financial technology, we should be cautious before giving these companies yet more reach into the economic lives of Americans.” They added, “Any such far-reaching change should be debated by Congress.” Meanwhile Nat Hoopes of the Marketplace Lending Association maintains that FinTech firms are not a threat to consumers’ finance and, in fact, help meet the needs of underserved communities. Hopes, in a statement to Roll Call, defended the role of these startups saying, “As thousands of traditional bank branches close, many communities are losing banking options. Limiting consumers’ banking choices in these circumstances is not going to help the American economy.” Notably the FDIC hasn’t actually approved an application for an industrial loan company since 2006. However, as mentioned, some FinTechs have recently applied. Currently only Square’s application is still pending after SoFi and Nelnet Bank withdrew their applications. Elsewhere in their report, the ICBA suggests that FinTechs taking advantage of this “loophole” could be on a slippery slope. Bringing things full circle, they warn, “If Square and Nelnet Bank become ILCs, we believe it is only a matter of time before large technology firms like Google, Amazon, Facebook, Apple, or Microsoft apply for an ILC charter.” Were that to happen, they argue that it would compromise users’ financial data and would allow companies to sell this information to third parties. The ICBA’s report is the latest attack facing FinTech as there are still lawsuits seeking to stop the Office of the Comptroller of the Currency from rolling out Special Purpose National Bank charters. Of couse some of the industry's wounds are also self-inflicted as the investment app Robinhood recently ran afoul of regulators by announcing a new feature without consulting the Securities Investor Protection Corporation. With the ICBA’s current push to close this “loophole” reportedly getting bipartisan support, it seems the FinTech industry could have some trying times ahead — but hopefully it won’t be enough to completely stop these firms from continuing their efforts to bring better banking to as many people as possible.

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