Sen. Brown to drop bill closing 'shadow' banking loophole after Musk says Twitter will take payments

Senate Banking Committee Chairman Sherrod Brown volition present a measure Tuesday that aims to adjacent the alleged shadiness banking loophole that allows retail and tech companies to connection banking services without the aforesaid stringent oversight arsenic different fiscal institutions.

The measure comes astir a period aft Twitter's caller CEO Elon Musk shared his plan to alteration the societal media level into a payment service and reportedly registered past month with the Treasury Department arsenic a payments processor.

Allowing tech and commercialized companies to enactment arsenic banks without due oversight "will lone unfastened doors for predatory lending, invasions of user privacy, and broader fiscal instability," Brown, D-Ohio, said successful a property release. "To support consumers' pocketbooks and guarantee a beardown banking strategy for Main Street, we request to guarantee each banking institutions play by the aforesaid rules," helium added.

Sens. Chris Van Hollen, D-Md., and Bob Casey, D-Pa., co-sponsored the bill. The measurement complements a House bill, approved by the Financial Services Committee successful June, that would adjacent the loophole for alleged concern indebtedness companies, oregon ILCs, by subjecting them to the aforesaid regulations arsenic federally insured banks.

Twitter is 1 of respective non-bank companies that sought to alteration banking services for users done state-chartered ILCs. Unlike each different slope holding companies, the holding companies of ILCs are not taxable to consolidated oversight by the Federal Reserve.

"In principle, you tin usage a nonstop messaging stack for payments. And truthful that's decidedly a absorption we're going to spell in, enabling radical connected Twitter to beryllium capable to nonstop wealth anyplace successful the satellite instantly and successful real-time," Musk told Twitter employees successful November.

Jack Dorsey, Musk's predecessor astatine Twitter, besides was progressive successful fiscal services done his abstracted payments institution Square. In 2020, Square reportedly held backmost 20% to 30% of the wealth collected from consumers who utilized it for recognition paper transactions. 

Other companies that person applied for ILC charters see eCommerce marketplace Rakuten, Ford Motor Company and fiscal services steadfast Edward Jones. The Federal Deposit Insurance Corporation approved ILC deposit security applications for Square and Nelnet, a pupil fiscal services company, successful 2020.

Supporters of the authorities reason the oversight loophole gives ILCs a competitory borderline implicit accepted banks. The senator's measure aims to guarantee each banking entities person the aforesaid oversight.

Backers of the measure besides enactment that the imaginable for ample companies to acquisition banks could airs issues for user information privateness and crate conflicts of interest.

"It's not truly bully for similar section economies, and some from the user broadside and from the banking and fiscal services side," a elder Democratic adjutant told CNBC.

"If a immense institution similar Facebook oregon thing similar that, acquires a slope ... they don't truly person an concern successful a peculiar assemblage similar a assemblage bank, oregon adjacent a determination slope does. They're conscionable looking to monetize their data, and that could beryllium problematic," the adjutant said.