Nelnet Withdraws Application in Latest Controversy Over ILC Banks
Nelnet announced that it has withdrawn its application with the Federal Deposit Insurance Corporation (FDIC) and the Utah Department of Financial Institutions (UDFI) to establish Nelnet Bank, a Utah-chartered industrial bank, or an ILC (Industrial Loan Company) bank. This could have been made possible through an existing, yet controversial, policy established over 100 years ago which gives FDIC protection to non-deposit taking financial institutions.
The ILC concept was initially intended to create bank-like institutions to serve poor industrial workers who had trouble finding a commercial bank they could work with, according to Chris Cole, Senior Regulatory Counsel at the Independent Community Bankers of America (ICBA).
“We appreciate the constructive dialogue we have had with the FDIC and UDFI regarding our application,” said Nelnet President Tim Tewes. “Withdrawing our application is a temporary step back in what we knew could be a long process. The need for more financially secure, borrower-focused, and FDIC-insured lenders in the private student loan marketplace is increasing [and] we believe Nelnet is an ideal candidate to be such an institution with our financial strength, customer focus, and experience.”
Opponents of ILC banks, like the ICBA, celebrated the news that Nelnet had withdrawn its application to become an ILC bank.
“ICBA opposed Nelnet’s deposit-insurance application to establish an industrial loan corporation and supports an end to the ILC loophole,” ICBA President Rebeca Romero said in a statement. “The ILC loophole allows commercial interests to own full-service banks while avoiding Bank Holding Company Act regulations and consolidated supervision by the Federal Reserve.”
Nelnet filed its industrial bank charter application on June 28, 2018. It is not the first fintech company to withdraw an application of this kind. SoFi Bank and Square also sought industrial bank charters, but SoFi withdrew its application in October of 2017 and Square with its application in July of this year.
Last modified: October 2, 2018
Todd Stone is a reporter for deBanked.