Now it’s easier for nonbanks to become lenders
Amazon. com Inc., Facebook Inc., Walmart Inc. and other corporate giants may soon give Wall Street a run for its money as a key U. S. regulator smooths the path for nonbanks to get into lending.
The Federal Deposit Insurance Corp. on Tuesday approved a final rule governing “industrial loan companies” that will allow major businesses to seek banking charters while escaping capital and liquidity demands faced by dedicated financial firms.
The measure will “provide transparency to market participants regarding the FDIC’s minimum expectations for parent companies of industrial banks,” Chairman Jelena McWilliams said.
The new rule formalizes years of agency practice with the industrial loan company charters, which were created to let commercial firms make small loans to workers but have become a back door into big- time banking.
The proposal released earlier this year sparked alarm in the banking industry over the prospect of competition against giant companies that could leverage their huge customer bases and guaranteed consumer traffic to gain meaningful toeholds in banking. And they could offer customers financial services backed by the government — including FDIC deposit protections — with fewer regulatory demands.
Bankers, in an unusual alliance with Democratic lawmakers and consumer groups, have called for a halt in approving new charters until Congress closes a loophole that allows what they see as an unfair advantage.
The FDIC cleared two industrial loan f irms this year when it granted conditional deposit- insurance approval for mobile payment f irm Square Inc. and student lender Nelnet Inc. But an effort by Japanese online retailer Rakuten Inc. to set up its own bank is seen as a major test case for a nonfinancial f irm to break down the traditional barrier between banking and commerce.
“If the FDIC approves Rakuten’s application, it will set a precedent for every other Big Tech company ( Amazon, Facebook, Google, etc.) to enter banking through an [ industrial loan company] charter without consolidated supervision,” the Bank Policy Institute, a Washington- based industry lobbying group, wrote in a blog post last month.
Facebook declined to comment, and Amazon and Google didn’t respond to emails seeking comment.
The FDIC said in a rule notice Tuesday that the agency is obliged to implement federal law as it exists today, citing an increased urgency to clarify the application process.
“Whether commercial f irms should continue to be able to own industrial banks is a policy decision for Congress to make,” the agency said in its notice.
Industrial loan companies have existed since the early part of the 20th century, and they were initially used to provide credit for workers underserved by commercial banks.