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Consumer Groups, Banks Call on Congress to Rein-in Fintech Lenders
Legislation would close loophole, bring big tech lenders under FDIC authority
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…
