FDIC Finalizes Rule Clarifying Industrial Loan Company Application Process

On January 15, 2021, the FDIC adopted a final rule clarifying the application process and supervisory expectations for industrial loan companies, amid rising fintech interest in the ILC charter as a pathway to banking services. The rule formalizes conditions and written commitments that the FDIC may require of ILC parent companies as part of the deposit insurance application process. It does not grant specific charters to any fintech firm but establishes a more transparent and predictable framework for ILC applications.

The rule addresses concerns about the mixing of banking and commerce by imposing capital and liquidity requirements, as well as ongoing supervisory conditions on parent companies. For the BaaS and embedded finance ecosystem, this rule is significant because ILC charters have been a favored route for fintech companies like Square and Nelnet to gain direct banking capabilities. The codification provides greater certainty for fintechs evaluating whether to pursue an ILC charter versus partnering with an existing bank for embedded finance offerings.