AS PUBLISHED IN CONSULTING MAGAZINE by Paul Schaus, CEO and Founder, CCG Catalyst Consulting.
Charters: Why ILCs Can Be a Growth Engine for Advisory Firms
From automakers to fintechs, major players are utilizing Industrial Loan Companies to bypass traditional holding company restrictions and control their own banking infrastructure.
As commercial giants like PayPal and Ford navigate the complex path to FDIC insurance, the demand for consultants to bridge the gap between commerce and compliance is skyrocketing—creating a critical need for expertise in risk management, CRA strategy and charter application navigation. Paul Schaus, CEO and Founder of CCG Catalyst Consulting shares his distinct insight into the trend.
In my career as a banker and currently an advisor to banks, fintechs, and the groups that want to become them, few topics have generated as much debate as the industrial loan company charter (ILC). The ILC traces back over a century, in 1910 the first ILC was introduced when industrial workers could not get a loan from a traditional bank. But in 2026, it has become one of the most strategically significant entry points into the U.S. banking system, attracting applications from payment giants, automakers, buy-now-pay-later platforms and investment firms. For consultants, understanding who is pursuing these charters, what the charter provides, and why it has become the preferred entry to banking for a company is key information to know.
What makes the ILC distinctive and controversial is a single exemption. Under the Bank Holding Company Act of 1956, and amended in 1987, ILCs are excluded from the statutory definition of a “bank.” A company owning an ILC does not become a bank holding company and is not subject to consolidated Federal Reserve supervision. This allows commercial enterprises such as retailers, technology firms, automakers to own what is functionally a bank without the activity restrictions that are associated with traditional bank holding companies. To qualify, an ILC must be chartered by a state that has ILC authority, must not accept demand deposits unless the bank has assets below $100 million which is difficult to maintain today. Most ILCs simply forgo demand deposits, allowing them to operate with all the other deposit types such as savings, time deposits, now (negotiable order of withdrawal) money market accounts, etc. As of March 2025, 23 FDIC-insured ILCs hold approximately $247 billion in aggregate assets, less than one percent of all insured institution assets, but a tenfold increase from $25 billion in 1997.
You might be asking who is pursuing an ILC charter? This all started back in 2020 when Nelnet Bank was approved. The first ILC in 12 years. Nelnet Bank business is originating and refinancing private education loans and offering deposit products nationwide. The current applicant landscape reads like a cross-section of American industry. In January 2026, the FDIC approved conditional deposit insurance for both General Motors and Ford Motor Company for Utah-chartered ILCs supporting vehicle financing joining BMW and Toyota, which already operate ILCs. That same month, Affirm applied to the Nevada Financial Institutions Division and the FDIC to establish Affirm Bank as a Nevada-charted ILC, seeking to scale its buy-now-pay-later and consumer lending operations through an FDIC-insured subsidiary. In December 2025, PayPal applied to establish PayPal Bank as a Utah ILC focused on small business lending, seeking to reduce reliance on third-party sponsor banks across its $1.68 trillion payment platform. Block already operates Square Financial Services as a Utah ILC, originating Cash App Borrow a small‑dollar, short‑term consumer loan product offered inside Cash App. Edward Jones resubmitted its application in April 2025, and Sezzle, a buy-now-pay-later company has publicly discussed pursuing the charter to simplify its regulatory posture across state lines. Sezzle is not the only one.
The common thread is a desire to control banking infrastructure. For payments companies, the ILC provides direct access to FDIC-insured deposits and Federal Reserve payment systems, eliminating costly sponsor bank relationships. For manufacturers, it aligns sales financing with consumer credit. For investment firms, the ILC offers a deposit-gathering platform outside of holding company constraints.
Only seven states can charter ILCs qualifying for the Bank Holding Company Act exemption Utah, Nevada, California, Hawaii, Minnesota, Indiana, and Colorado and that list cannot expand without an act of Congress. Utah dominates with fourteen of the 23 active ILCs charters and the majority of recent applications target the Utah Department of Financial Institutions. The state has cultivated decades of institutional expertise supervising ILCs and their non-bank parents, making it the default jurisdiction. Nevada is emerging as a meaningful alternative it hosts several existing ILCs including Toyota Financial Savings Bank, and Affirm’s January 2026 application signals growing interest in the state as a chartering option. The remaining states see minimal activity. For advisors, the state decision is typically straightforward, the outstanding question is whether the FDIC will approve deposit insurance, which serves as the federal gatekeeper regardless of which state issues the charter.
I am often asked why a company would want to go through the process. Working within theregulatory environment is not a painless process, 12 to 18 months to get approval is not unusual. Some never get approval, the last one that created an uproar was in 2005 when Walmart applied for an ILC charter to be known as Wal-Mart Bank. They withdrew the application in 2007 due to the intense political, regulatory and industry opposition. But an ILC has some core advantages and is driving the current wave of applications.
- Regulatory flexibility – the parent retains its commercial operations without registering as a bank holding company.
- Lower-cost funding- FDIC-insured deposits are significantly cheaper than capital markets debt or warehouse lines, for a company like PayPal with $30 billion in loan originations, the savings are transformational.
- Elimination of third-party dependencies – direct access to payment rails and deposit-taking removes sponsor bank intermediaries.
- Nationwide lending under one license – an ILC can export its home state’s interest rates across state lines, replacing a patchwork of state licenses.
- Vertical integration – banking products embed directly into existing platforms, capturing value that would otherwise flow to partner banks.
The regulatory process is daunting, but the environment is shifting in favor of applicants. FDIC Chair Travis Hill has signaled openness to innovation, the agency withdrew a restrictive 2024 rulemaking and replaced it with a comprehensive Request for Information seeking comment on how the ILC framework should evolve, including whether different parent company types warrant different treatment. Treasury Secretary Bessent has publicly emphasized the urgency of new bank formation, noting that more than half of community banks have disappeared since the financial crisis.
Opposition remains vocal. Banking trade groups argue the ILC charter is a loophole in the separation of banking and commerce and have called for a pause on all ILC reviews. The National Community Reinvestment Coalition has challenged applications on CRA grounds, arguing that ILCs’ limited physical presence makes their community obligations artificially narrow. Critics also point to systemic risk, PayPal’s roughly $80 billion in assets and 434 million accounts far exceed what the ILC framework was designed to supervise. Despite this pushback, the regulatory trajectory clearly favors measured expansion.
For consulting firms, the ILC creates numerous engagement opportunities, the companies pursuing these charters are entering unfamiliar regulatory territory. Payments company, automakers do not have institutional knowledge of FDIC applications, bank-grade compliance programs, BSA/AML frameworks, or the technology infrastructure of a supervised depository. The demand spans business plan development, regulatory strategy, governance design, technology selection, CRA planning, and ongoing examination preparation. With at least six applications pending in Utah alone and more expected through 2026, consultants who bridge the gap between commercial operations and bank supervision will find a durable and expanding practice area.
The industrial loan company charter is no longer a niche instrument. It is the frontier where banking meets commerce, and the companies that navigate it successfully will reshape financial services for the next decade.
Paul Schaus is the Founder and Managing Partner of CCG Catalyst Consulting, a leading management consulting firm serving banks, credit unions, and fintechs. With over 30 years of experience as a banker, strategist, and consultant, he also serves as the Founder and Managing Partner of the Bankers Fintech Council.
