Trade Group Urges FDIC to Reject NelNet Bank Application

On Wednesday, the Independent Community Bankers of America (ICBA) asked the Federal Deposit Insurance Corp. (FDIC) to deny Nelnet’s application to become an Industrial Loan Corporation (ILC) bank. ILC banks are special purpose banks that are not required to adhere to the same regulations as other banks, yet they can bear the same risk of failing.  

“The ILC loophole allows commercial interests to own full-service banks while avoiding the legal restrictions and regulatory supervision that apply to other bank holding companies—threatening the financial system and creating an uneven regulatory playing field,” said ICBA President and CEO Rebeca Romero Rainey in a statement.

Furthermore, in a letter to the FDIC, the community bank trade group proposed a two year moratorium on future ILC bank applications. ILC bank charters are attractive to fintech companies because they offer reduced regulations (compared to traditional bank charters) and access to all 50 states.

“To support a safe and sound financial system and to maintain the separation of banking and commerce, the FDIC should impose a two-year application moratorium and Congress should close the ILC loophole for good,” Rainey said. “Our deposit-insurance system was created to protect depositors—not commercial firms.”

ICBA’s letter references the fairly recent ILC bank applications of two other fintech companies, SoFi and Square. Square withdrew its application last month, but said it had plans to refile. SoFi withdrew its application last October following sexual harassment allegations against its then CEO Mike Cagney. The company has not stated that it has plans to refile the application.

The ICBA’s request for a moratorium on applications for ILC bank charters comes right after the U.S. Office of the Comptroller of the Currency (OCC) opened its doors this week to fintechs interested in obtaining special purpose bank charters. So now fintechs have a few options if they aspire to become a bank.

The ICBA’s mission is to advocate for the community banking industry. It represents nearly 5,700 community banks in the U.S.

Todd Stone was a reporter for deBanked.