Small banks have long led the campaign against industrial loan companies, arguing they can be used to violate the separation of banking and commerce. But now the industry’s heavyweights are also taking a hard line in response to an FDIC proposal that would give tech companies a smoother path into the lending business.
Three banking trade associations told the FDIC that Rakuten Bank America, even after revisions to its earlier application to the agency, would still violate the separation of banking and commerce as well as present consumer privacy concerns.
Recent steps that would help nonbank lenders enter the traditional banking system, like a proposal clarifying the industrial loan company charter, are needed but face strong opposition.
The Japanese e-commerce giant is taking another run at a U.S. banking charter after receiving feedback from the Federal Deposit Insurance Corp. about its initial application, which was withdrawn earlier this year.
The company's plan had drawn strong criticism from bankers about Rakuten's potentially controlling an industrial loan company while engaging in its non-financial businesses.
In signing off on deposit insurance for the payments giant and student loan servicer, the FDIC sanctioned the first new industrial loan companies in over a decade.
On the same day the Federal Deposit Insurance Corp. said it will soon rule on two applications, the agency also proposed benchmarks for all firms that want to own industrial loan companies.
A decision by regulators on how to move forward with the controversial charter could have broad implications for fintech firms that want to enter the banking system.