Fine Points

A call for consistency

Regulatory parity across the financial services sector has long been a priority for ICBA and the nation’s community bankers. While community banks labor under the yoke of burdensome rules and regulations, we also compete against institutions that enjoy far less stringent regulatory and tax regimes. Amid a rapid evolution in the financial services sector, with fintech firms exploring special-purpose bank charters and industrial loan corporation applications, the issue of regulatory consistency is more relevant than ever before.

ICBA has long pushed for regulatory and tax parity with institutions that enjoy government-sponsored competitive advantages, including credit unions, Farm Credit System entities and the largest financial firms. In an era of taxpayer-endowed funding advantages on Wall Street and ever-expanding missions at tax-exempt credit unions and FCS institutions, community banks are often the odd man out.

This issue has been compounded by the Office of the Comptroller of the Currency’s call for applications from fintech companies to become special-purpose national banks. Not only is it unclear whether the OCC has the right to issue such a charter for these lightly regulated companies, its plan to adopt different safety-and-soundness and Community Reinvestment Act standards for these institutions also poses regulatory and consumer-protection concerns. We continue to make the case to the OCC that any limited fintech charter must hold these firms to the same standards of safety, soundness and fairness as other federally chartered institutions.

In addition to the special-purpose charter, fintechs are raising the lid on a longtime community banking concern that has remained under the radar in recent years: industrial loan corporations. SoFi, a fintech that offers a variety of personal-finance services, has applied for an ILC charter in Utah to offer FDIC-insured accounts and credit cards. ICBA has used this opportunity to bring to the surface our long-standing call for a much-needed policy change: closing the ILC loophole permanently.

The ILC charter permitting corporate conglomerates to own banks sidesteps the longtime separation of banking and commerce, jeopardizes the impartial allocation of credit, creates conflicts of interest, exacerbates industry concentration and extends the federal safety net to commercial entities. ILC parent companies are unregulated under the Bank Holding Act, which is why it is popular among commercial interests. Meanwhile, retailers that provide insured deposit accounts and other banking products to their employees may do so without providing adequate disclosures or complying with Bank Secrecy Act and Fair Credit Reporting Act rules.

The FDIC’s moratorium on new ILC charters, which was extended by the Dodd-Frank Act for three years, expired in 2013. Congress can put to rest the many concerns raised by this contentious, misguided and inequitable policy by permanently closing the ILC loophole.

Advocating equity between community banks and comparable financial institutions with lighter regulatory and tax burdens is not anticompetitive. It is a call for a coherent financial services policy. Community banks have faced regulatory inequity for too long. A principles-based regime and federal safety net commensurate to the size, risk and services provided by regulated institutions would ensure a level playing field that benefits consumers, communities and the broader financial services marketplace


Follow Camden R. Fine on Twitter,
@Cam_Fine.

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