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Trades object again to Rakuten FDIC application

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Banking
Friday, June 26, 2020

Three banking trade associations wrote to the Federal Deposit Insurance Corp. (FDIC), asking the prudential regulator not to review or approve a re-submission for federal deposit insurance.

The associations previously objected to the application by Rakuten Card Co. Ltd., a subsidiary of Rakuten, Inc., and said the revised application does “little to address” the concerns they previously raised.

The letter was written jointly by the American Bankers Association, the Bank Policy Institute and the Consumer Bankers Association.

“We believe that the revised application has not materially changed and does little to address the fundamental question of mixing banking and non-financial activity as raised by the initial application, including concerns involving the use, privacy, and security of customer information,” the associations wrote the FDIC. “Because of this and for the reasons described below, the FDIC should neither review nor approve the Rakuten application.”

The associations referenced their previous objections, which included:

  • Significant risks to the Deposit Insurance Fund (DIF) raised by the affiliation, integration, and assimilation of banking and nonfinancial businesses, and
  • Consumer protection concerns raised by the collection, use, privacy, security, and safeguarding of customer information.

They also referenced previous concerns expressed by the FDIC about institutions which do not present a viable business model on a standalone basis.

“Consequently, review and approval of the Rakuten application would run counter to the FDIC’s responsibilities to protect the DIF and to ensure that the convenience and needs of the community to be served are met,” they wrote.

The associations wrote that the FDIC recently acknowledged the trade-offs of mixing banking and commerce, and bank affiliations with non-financial firms, areas in which the FDIC said Congress would be best left to address those trade-offs.

“We agree with the FDIC that the Rakuten application’s precedent-setting nature warrants deferral to Congress,” they wrote. “Therefore, unless and until there is federal legislation that specifically addresses this issue, the FDIC should shelve, or alternatively, disapprove the Rakuten application. At a minimum, the FDIC should not commence review of the Rakuten application for federal deposit insurance until the agency finalizes its pending rulemaking on parent companies of ILCs and industrial bank subsidiaries.”

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