FDIC seeks to simplify ILC, bank branch application processes

Recent moves by the Federal Deposit Insurance Corp. aim to simplify the process for approving industrial loan company and bank branch applications.

The FDIC Board voted unanimously on July 15 to issue a request for information seeking information from ILC applicants on the application process. The board also withdrew a proposed rule related to ILCs issued in August 2024, under the Biden administration, that would have scrutinized the relationship between ILCs and their parent companies.

Historically, few ILC applications have received approval: Only three have been successful since 2006. Most companies withdraw and refile their ILC applications at least once during the review process.

Since Trump took office, there has been an uptick in ILC applications, which has increased further since acting FDIC Chairman Travis Hill publicly encouraged ILC applications in an April speech.

So far this year, at least five companies have applied for ILC charters, including some that had applied previously and withdrew their applications. The most recent was Nissan Motor Acceptance Company LLC, which submitted an application in June. In 2023 and 2024, there were no ILC applications. The last ILC approval went to Thrivent Financial for Lutherans in June 2024.

"Though each case will be considered based on its specifics, we expect that the FDIC will be much more open to ILCs than it was under Biden," wrote Ian Katz, managing director at Capital Alpha Partners LLC, in a July 14 report.

Also at its July 15 board meeting, the FDIC issued a slew of rule proposals, including one raising certain supervisory asset thresholds. Another new FDIC proposal would eliminate the public comment process for branch applications, while other de minimis facility moves would no longer require filings.

This proposed change would "enhance the speed and certainty of the branch approval process," Hill said in a statement, adding: "It is extremely rare that the FDIC would have a supervisory interest in precluding a bank from opening a new branch."

The FDIC Board unanimously approved the branch approval proposal in closed session.

In its open meeting, the FDIC Board also unanimously approved the issuance of a proposal to create a standalone office for resolving appeals.

The new office is meant to allow banks to appeal the FDIC's material supervisory determinations. It would replace the Supervision Appeals Review Committee. Material supervisory determinations include CAMELS, the Community Reinvestment Act (CRA) and other types of ratings, Truth in Lending Act restitution, decisions to initiate informal enforcement actions and matters requiring board attention.

The FDIC planned to create the office in 2020, but it did not proceed after the agency leadership changed in 2021. Hill said the rationale for the office remains the same, but now the appeals process would include former industry professionals, such as former bankers.

"The intent of the proposed office is to promote an independent, apolitical, and consistent appeals process," Hill said in a statement. "By recruiting externally, the FDIC anticipates attracting impartial candidates who are less likely to have established relationships with individuals involved in the supervisory process."

The FDIC will accept public comments for the ILC request for comment, the branch application proposal and the appeals process proposal 60 days after publication of the proposal in the Federal Register.

In another unanimous vote in closed session, the FDIC proposed withdrawing the CRA rule from 2023, which all three federal bank regulators recently said they would do. In early 2024, bank trade groups sued the agencies over the rule, accusing them of exceeding their statutory authority.

The FDIC will accept comments for 30 days after the proposal is published in the Federal Register.

Lastly, the FDIC will seek public comment for 90 days as part of the regular Economic Growth and Regulatory Paperwork Reduction Act process, "to identify outdated or otherwise unnecessary regulatory requirements," the proposal said.