Consumer Groups, Banks Call on Congress to Rein-in Fintech Lenders

Legislation would close loophole, bring big tech lenders under FDIC authority

Andy Spears
2 min readApr 5, 2022


Photo by Markus Spiske on Unsplash

A coalition of advocacy groups representing consumers and banks is calling on Congress to close a loophole that allows so-called fintech companies to operate as banks without any of the attendant regulation.

The groups released a letter calling on Congress to pass bipartisan legislation sponsored by Rep. Chuy Garcia (D-IL) and Lance Gooden (R-TX) that would close what is known as the “ILC loophole.”

The ILC loophole allows large technology companies — such as Japanese e-commerce firm Rakuten, whose primary business is monetizing consumer data — and other commercial firms to own and operate what is essentially a full-service FDIC-insured bank, and do so entirely free from the regulatory oversight, activity limitations and prudential safeguards that apply to every other person who owns or operates a federally-insured depository institution.

According to the Bank Policy Institute, current law gives an ILC or industrial loan company freedom from regulation:

ILCs offer banking products and services that are functionally indistinguishable from those offered by banks, but the ILC loophole allows the parent companies of ILCs to avoid oversight by the Federal Reserve Board and to engage in commercial activities, thus introducing risk to the banking system and to taxpayers.

“Although ILCs have the powers of a commercial bank, their corporate owners — unlike the owners of commercial banks — are not subject to consolidated supervision and regulation by a federal banking agency, which can allow risks to build up in the organization outside the view of any federal supervisor. Simply put, this regulatory loophole creates safety and soundness risks for the institution, risks to the financial system and additional risks for consumers and taxpayers,” the groups wrote. “ILC owners should not have the ability to sell their status rights to the highest bidder and therefore exploit consumer data, undermine trust in our banking system and otherwise put our financial system at risk. To put it more simply, allowing existing ILCs to transfer their rights to an unaffiliated party would be the legislative equivalent of attempting to close the barn door but leaving the side of the barn wide open.”

The groups signing the letter include:

Americans for Financial Reform, Bank Policy Institute, Center for Responsible Lending, Consumer Federation of America, Credit Union National Association, Independent Community Bankers of America, Mid-Size Bank Coalition of America, National Association of Federally-Insured Credit Unions, National Consumer Law Center, National Community Reinvestment Coalition and U.S. PIRG.

Want more consumer protection news? Check out my newsletter!



Andy Spears

Writer and policy advocate living in Nashville, TN —Public Policy Ph.D. — writes on education policy, consumer affairs, and more . . .