Rep. Maxine Waters (D-CA) is urging the Federal Deposit Insurance Corporation (FDIC) to hold a public hearing on Social Financial’s (SoFi) application to establish an Industrial Loan Company (ILC), which would allow it to obtain financial deposit insurance.
In a letter to FDIC Chairman Martin Gruenberg, Waters said granting federal deposit insurance to a financial technology company like SoFi, and ILCs, in general, comes with unique risks that should be discussed in a public hearing.
“Granting SoFi’s application would set a precedent that a wide variety of other fintech companies may choose to follow even though concerns related to financial inclusion, consumer benefits, supervision, and regulation of such entities are still unresolved,” Waters wrote. “Thus, the FDIC should carefully consider these concerns when reviewing SoFi’s application, and in doing so, hold a public hearing to allow for a fuller vetting of the advantages and disadvantages of extending an outdated regulatory framework for ILCs to fintech companies, and the potential implications for the broader financial system.”
Companies that own ILCs are not subject to Bank Holding Company Act (BHCA) supervision. As a result, a company that owns an FDIC-insured ILC can engage in nonbanking commercial activities and not be subject to consolidated supervision.
Social Finance, Inc. subsidiary, Sofi Bank, offers an FDIC insured negotiable order of withdrawal account (NOW account) — a deposit account that pays interest. They also have a credit card product.
“Appropriate regulatory oversight of any ILC is an essential prerequisite to approving any application for deposit insurance backed by taxpayers,” Waters added. “These concerns regarding the regulation of ILCs generally, and concerns about extending the existing regulatory framework of ILCs to fintech companies, should be carefully considered, including whether it is appropriate for firms like SoFi to have access to Federal deposit insurance by simply establishing a state-chartered ILC. Holding a public hearing on SoFi’s application would provide an additional opportunity to weigh these concerns before acting on the application.”