After Withdrawing Bank Application, Rakuten Seeks Credit Union Charter

Update: An NCUA spokeperson said that Rakuten withdrew its credit union charter application on Sept. 5.

After withdrawing three applications with the FDIC seeking a charter as an Industrial Loan Company (ILC), Rakuten, a controversial company that offers everything from cash back to consumers for purchases to fintech services, now has submitted an application to form a credit union.

An NCUA spokesperson confirmed that Rakuten submitted an application on May 15.

Reports that the company had applied to the credit union regulator this week led the Independent Community Bankers of America (ICBA) to call on the NCUA to oppose the Rakuten effort.

Backstory and Context

Rakuten was formed in Japan in 1977 and it now offers ecommerce, credit cards, and life insurance, as well as travel booking and other services. Its website states that it operates 70 businesses, including a bank in Japan.

“Everything we know about how Rakuten operates in other countries suggests that its expansive structure, with linkages across financial services and other commercial activities, will mean that it wants to operate similarly in the United States,” the National Community Reinvestment Coalition (NCRC) and 36 other groups wrote, in response to one of Rakuten’s ILC applications.

In addition to controversy over the company itself, much of the financial services industry also has opposed Industrial Loan Companies in general, arguing that commercial firms should not be permitted to own banks.

ICBA Involvement

The ICBA said it has filed a Freedom of Information Act request with the NCUA, seeking information about the credit union charter application. The trade group noted that unlike banking regulators, the NCUA does not maintain a public database of organizations that have applied for federal insurance or a national charter.

“Because NCUA is not transparent regarding who applies for a federal charter—unlike other federal bank agencies as a matter of right—ICBA is seeking information that should have already been available to the public,” said Michael Emancipator, senior vice president and regulatory counsel at the banking association.

“ICBA was first made aware of this effort through social media posts from reporters over the summer. We were also aware of another trade association’s request that NCUA denied due to their ‘deliberative decision-making,’” he continued. “ICBA is simply seeking an official confirmation or denial from NCUA on something that has been mainly conveyed unofficially through news reports and other efforts.”

ICBA President Rebeca Romero Rainey called on the NCUA to release information about the Rakuten charter.

“After repeatedly applying for an industrial loan company charter to limit its regulatory oversight, Rakuten is now reportedly seeking a charter with the National Credit Union Administration,” she said. “ICBA and the nation’s community banks urge the credit union regulator to publicly weigh in on whether Rakuten is seeking a credit union charter—information that federal banking regulators make public as a matter of course.”

‍What Comes Next?

While the three applications submitted to the FDIC were for banks, not a credit union, letters from banking trade groups and consumer organizations shed some light on the likely reaction to a credit union charter application.

In a 2020 letter to the FDIC, the ICBA said that the deep commercial interests of Rakuten affiliates could jeopardize the bank’s ability to act independently.

“Rakuten Bank would always be concerned with how its credit is influencing or affecting the commercial interests of its affiliates,” the trade group stated. In addition, the ICBA argued, the company might be “tempted to direct Rakuten Bank to engage in transactions that benefitted the holding company’s affiliates but were detrimental to the ILC’s safety and soundness.”

The American Bankers Association also questioned how independent a Rakuten Bank could be.

The NCRC expressed similar worries, saying the consumer group and its allies were “concerned that the parent companies would exert undue pressure on the lending operations to push loans to Rakuten’s customers for retail products and merchant lines of credit.”