Upgrade, a fintech company, has applied for an industrial loan company (ILC) charter with the Federal Deposit Insurance Corp. and the Nevada Financial Institutions Division. The company announced the move on Monday, citing its mission to bring responsible and affordable credit to consumers.
Virginia Varela, proposed CEO of Upgrade Bank, expressed excitement about establishing a new bank. Varela has over 40 years of experience in the banking sector, including time as a regulator and senior bank examiner.
Varela’s experience includes more than two decades with the Office of the Comptroller of the Currency and two years with the Federal Reserve. She also has experience in bank turnarounds, having worked on several after the 2007-08 financial crisis. This experience will be valuable in leading Upgrade Bank.
Upgrade launched about a decade ago as a credit-card startup but has since expanded to offer personal loans, mobile banking, auto financing, and buy now, pay later options. The company has delivered around $53 billion in credit to roughly 8.5 million customers. Upgrade’s growth has been significant, and it continues to provide financial services to a large number of customers.
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An ILC charter would make Upgrade less dependent on its current partners, Cross River and Celtic Bank, for loans, credit lines, and banking services. The company’s co-founder and CFO, Jeffrey Bogan, will serve on Upgrade Bank’s board alongside Varela and independent director Raymond Specht. It will also give them more control over their financial operations.
Upgrade’s application is part of a larger trend, with several companies, including Flex and Klarna, applying for ILC charters in recent months. Some lawmakers have raised concerns about the lack of oversight for ILCs, which can bypass Federal Reserve supervision as long as they don’t offer demand deposit accounts. Lawmakers are concerned about the potential risks associated with this lack of oversight.
The Independent Community Bankers of America has argued that this lack of oversight creates a gap in safety and soundness oversight and introduces unnecessary systemic risk into the banking system. Sens. Elizabeth Warren and Andy Kim have proposed a moratorium on commercially owned ILC charters until these entities are defined as “banks” under the Bank Holding Company Act. They believe that this change is necessary to ensure the stability of the banking system.
