Edward Jones withdraws ILC charter application

Diving brief:

  • Edward Jones last week withdrew its claims with federal and Utah regulators to establish an industrial lending charter (I WILL SEE) company, the investment firm said in a Securities and Exchange Commission (SEC) filing.
  • The company cited “the current environment” and “recent conversations” with the Federal Deposit Insurance Corp. (FDIC) as reasons for abandoning the effort.
  • Edward Jones “actively seeks additional strategies, products, structures and relationships to meet clients’ saving, spending and borrowing needs and to help clients achieve financially what is most important to them”, the company said.

Overview of the dive:

Edward Jones was one of many non-banks, including auto giants GM and Ford, Japanese e-commerce company Rakuten and fintech Brex, to apply for the charter after the FDIC approved the company’s applications Square payment (now Block) and student loan service. Netnet in 2020.

These approvals paved the way for the first new ILCs in over a decade. But the charter was pushed back because it exempts ILCs from the definition of a “bank” under the Bank Holding Act. Opponents, such as banking trade groups and some lawmakers and regulators, argue that it creates a loophole that allows ILCs to circumvent Federal Reserve oversight.

In July, Ford introduced its ILC concept as a way to focus on auto-related lending and help it promote the adoption of electric vehicles in the United States. four consumer groups called the effort dishonest, adding that it leaves consumers open to privacy breaches.

“Ford Motor electric vehicles are connected devices that can upload and download” consumer data, which would be shared between Ford Motor and Ford Credit, National Community Reinvestment Coalition, National Consumer Law Center, Americans for Financial Reform Education Fund and the Center for Responsible Loan wrote in August. Then, they added, “the information is sold to third parties.”

The Independent Community Bankers of America (ICBA), meanwhile, said it would “continue to call on Congress to close” the ILC loophole.

“Any business that wants to own a full-service bank should be subject to the same restrictions and oversight that apply to any other bank holding company,” said ICBA CEO Rebeca Romero Rainey. said in a statement in August.

Senator John Kennedy, R-LA, introduced a bill in 2019 to close that loophole. “The Rakutens and Googles of the world shouldn’t be able to bypass the Fed,” he said at the time. “If they are allowed to manage your banking services, they will turn into continents.”

The opposition was not limited to the Republican Party. Sen. Sherrod Brown, D-OH, accused the FDIC, in approving Square and Nelnet’s charters, of mixing corporate favors “out the side door” at the start of the COVID-19 pandemic.

“Just before the [2007-08] crisis, regulators gutted financial rules and even considered letting megacorporations like walmart own banks – and here we go again,” Brown said in a statement in March 2020.

Not all FDIC board members voted in favor of the Square and Nelnet movements. Martin Gruenberg, in 2020, said Square had “not yet demonstrated viability during a downturn in the business cycle…In fact, it has failed to demonstrate viability during the upside of a business cycle” .

Gruenberg now serves as the regulator’s acting chairman — a prospect that may have left Edward Jones less able to pursue his own ILC efforts.

Edward Jones is not the first ILC candidate to drop his bid for a charter. Rakuten withdrew two applications before submitting a third. Brex withdrew its application in August 2021. Applications from GM and Ford are still pending.

In late 2020, the FDIC issued a final rule requiring ILC parent companies to agree with the agency on capital and liquidity levels and commit to maintaining them. The rule, however, arguably relaxed the restriction on parent company representation on the ILC board and a clause requiring FDIC approval for departures or replacements of board members. . Gruenberg disagreed with the rule at the time but was outnumbered.