A US banking trade lobby has called on the Federal Deposit Trade Insurance Corp to throw out an attempt by Square to operate as an industrial loan corporation (ILC), and demanded a two-year moratorium on ILC deposit insurance applications.
An Industrial Loan Charter would give Square permission to carry out banking services but also enable it to continue providing other non-financial commercial services - a practice that is denied to fully-licensed banks. In theory Square, which applied for an ILC rather than a traditional banking license, will be able to continue to operate its food delivery business Caviar as well as the provision of its payment terminals.
The Independent Community Bankers of America (ICBA) noted in a protest letter to the FDIC that Square’s application is designed to avoid legal prohibitions and restrictions under the Bank Holding Company Act.
“Square should be subject to the same restrictions and supervision that any other bank holding company of a community bank is subject to,” ICBA EVP and senior regulatory counsel Christopher Cole wrote. “Furthermore, Congress should close the ILC loophole because it not only threatens the financial system but creates an uneven playing field for community banks.”
ILCs were subject to a moratorium during the passing of the Dodd Frank Act but this was lifted in 2014. Since then retailer WalMart unsuccessfully applied for an ILC, followed earlier this year online lending startup SoFi in a move which has also been opposed by the banking lobby.
ICBA’s letter calls on Congress to permanently close the ILC loophole, arguing that the integration of massive technology and banking firms would result in "an enormous concentration of financial and technological assets while posing significant conflicts of interest and privacy concerns".
In response, a Square spokesperson says: "Our application reflects Square’s ability to build a bridge between the financial system and the underserved, addressing the needs of small businesses that few community banks even reach. We believe each and every ILC application should be considered on its individual merits, not ICBA's inaccurate view of ILCs. We trust the FDIC, who has direct oversight and regulation of all ILCs, to effectively assess our application's safety, soundness, and compliance with applicable laws before granting a charter."