The U.S. House Financial Services Subcommittee on Consumer Protection and Financial Institutions held a hearing to consider proposed legislation on novel financial institution charters such as industrial loan companies ("ILCs"), as well as state charters and licenses for cryptocurrency and blockchain firms.

At the hearing titled "Banking Innovation or Regulation Evasion? Exploring Modern Trends in Financial Institution Charters," the Subcommittee considered two bills.

  1. H.R. ____, the "Bank Charter Review Act," which would institute a three-year moratorium on (i) the approval of new applications for ILCs and (ii) ILC-related changes of control. The staff memo notes that the bill would also require a GAO study on (i) available federal and state banking charters and (ii) the use of technology by market participants. The bill would further provide administrative and legislative recommendations to promote the separation of banking and commerce, consumer protection, diversity and inclusion, safety and soundness, financial stability, and fair competition for current and potential market participants.
  2. H.R. ____, the "Close the ILC Loophole Act," which would remove the exemption for ILCs from the definition of a bank under the Bank Holding Company Act.

The Subcommittee heard testimony from, among others, former Acting Comptroller of the Currency Brian Brooks. Mr. Brooks highlighted (i) the shrinkage of the traditional banking system, (ii) the decline of new bank charters and (iii) the emergence of FinTech firms. Mr. Brooks asked the Subcommittee to consider how innovation can bolster the traditional banking system, and how the expanded scope of a bank charter can accommodate new technologies and business models. The other panel participants expressed caution or opposition toward these nontraditional charters without notice and comment.

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