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ILCs, the OCC, and the Future of Fintech Banking

Industrial Loan Companies (ILCs) are a different kind of financial institution. The ILC is a state-chartered FDIC-insured depository financial institution with certain advantages common to banks but without all of the corresponding regulatory overlay. This is one reason why aspiring fintech companies may consider foregoing the pursuit of a federal OCC “fintech” charter in favor of a state ILC charter.

This prospect has gained traction recently amid growing uncertainty about the future of the Office of the Controller’s new federal fintech charter.

The OCC announced last July that it would start accepting applications for national bank charters from nondepository financial technology (fintech) companies engaged in the business of banking. According to Comptroller of the Currency Joseph Otting, the national bank charter could provide “a path for fintech companies to become national banks and make the federal banking system stronger” while, at the same time providing “consumers greater choice” and creating “a more level playing field for financial services companies”. Notably, however, the OCC is still waiting for its first “fintech” application.

The headwinds encountered by the OCC fintech charter have included a legal challenge by state regulators and “ the lack of certainty as to where the Fed stands on key issues –like the application of the Bank Holding Company Act or what it might charge a fintech to become a bank” and whether the OCC-chartered fintech firms would “have the same access as banks to the Fed’s discount window.”

Given the uncertainty surrounding the OCC fintech charter, some fintech companies are giving the ILC charter another look. One such notable company is the high profile payments company Square. Square recently amended its previously withdrawn Utah ILC application and refiled its application with the FDIC.

While defending the viability of the OCC’s fintech charter, Comptroller Otting also acknowledged the potential benefit of ILCs. “I would be very much interested in pursuing ILCs if I thought that they would bring more choice to consumers and small businesses.”

Since Mr. Otting is not only the Controller of the Currency but also a member of the Board of the FDIC, he will be in a unique position to view and perhaps influence the evolving U.S, Fintech banking landscape.

Copyright © 2019 Robinson & Cole LLP. All rights reserved.


About this Author


Norman Roos, a member of the firm's Business Transactions Group, concentrates his practice on transactional, regulatory, and technology matters relating to the financial services and real estate industries.

Financial Transactions

Norm represents banks, insurance companies, diversified financial service companies, and other publicly and privately held entities on a broad range of matters involving consumer and commercial credit transactions with a special focus on mortgage banking. He handles corporate and contract matters, and his experience includes bank...