Democratic majority on FDIC board spells trouble for ILC hopefuls

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Democratic majority on FDIC board spells trouble for ILC hopefuls

WASHINGTON – When the Federal Deposit Insurance Corp. broke a decade-long freeze in March 2020 in approving new industrial loan companies, fintech advocates celebrated what they hoped would be an enduring thaw.

But a year and a half later, the political environment is not in ILCs’ please. Democratic appointees hold a 3-1 majority on the FDIC board, giving them enough votes to reject any application that they oppose.

“I expect the Democrats on the board to take a hard look at any charter application that attempts to mix banking and commerce,” said Todd Phillips, director of financial regulation at the Center for American Progress, and a former FDIC attorney.

The ILC, also known as the industrial bank, remains a controversial charter option. Fintech firms view it as a promising avenue to access the banking system without the full brunt of regulatory scrutiny, and it is one of the few charters still available to nonfinancial firms.

While the prudential regulators appointed by the Trump administration were generally eager to open their charters to fintechs, the Biden administration has signed a more cautious approach.

The FDIC is led by Chair Jelena McWilliams, right, a Trump appointee. But the agency’s five-member board is now stacked with three Democratic appointees, including former Chair Martin Gruenberg, left, and acting Comptroller of the Currency Michael Hsu.

Bloomberg News

“It’s been clear that there are many people in the industry, academia and policymaking circles for some time that have raised very significant concerns about ILCs and industrial banks,” said Dennis Kelleher, president and CEO of Better Markets.