Sen. John Kennedy (R-La.) today wrote to the Chairman of the Federal Deposit Insurance Corporation (FDIC), Jelena McWilliams, urging her not to allow industrial loan companies (ILCs) to take advantage of a loophole in the Bank Holding Company Act during the coronavirus pandemic. The loophole allows ILCs to circumvent supervision by the Federal Reserve and to pursue commercial activities that bank holding companies are not allowed to pursue.
“I have concerns that we are approaching an inflection point that compromises this nation’s longstanding policy of not mixing commerce and banking. In particular, I am deeply concerned about companies the size of Rakuten, Google, or Facebook offering banking services without proper supervision. The ILC loophole was never meant to address these types of firms,” said Kennedy.
Specifically, Kennedy asked the FDIC not to approve any ILC-related applications, including applications from Square and Nelnet, until Congress and the FDIC can find a solution to the loophole.
“We need to tread lightly and ensure that complicated policy trade-offs are considered, while still encouraging innovation that reduces barriers to banking for customers and challenges market participants to improve their business models. Although Congress may be in the best position to address these complicated policy trade-offs, we would like to do so alongside the FDIC,” Kennedy added.
Kennedy’s letter is available here.