Upgrade is latest fintech to seek ILC charter

• Key insight: Upgrade says its application would give the fintech its own FDIC-insured bank while preserving its existing relationships with partner banks and loan purchasers.
• Supporting data: The neobank says it has provided more than $53 billion in credit to 8.5 million customers since its 2016 founding.
• Forward look: The application comes as regulators have approved a wave of national trust charters, a move that the banking industry has sued to block. The number of ILC applicants — and banks' opposition to them — has remained relatively muted by contrast.

Neobank Upgrade has applied for an Industrial Loan Company Charter with the Federal Deposit Insurance Corp. and the Nevada Financial Institutions Division, according to the company. 

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The firm, which bills itself as providing "affordable and responsible credit" to the general public, said the ILC charter would complement Upgrade's established relationships with partner banks and purchasers of loans, and would allow the company to better fund credit products. 

Since its founding in 2016, Upgrade has delivered "over $53 billion in credit to more than 8.5 million customers," the firm said in a release. 

"If approved, Upgrade Bank would operate as a wholly owned, Nevada-chartered, FDIC-insured subsidiary of Upgrade, Inc. with independent governance and internal controls, adding to Upgrade's existing business and bank partnerships," the company said. 

The latest industrial bank bid comes at a moment when bank regulators have been welcoming of new entrants and granted a number of nontraditional bank charters, most notably national trust charters, nearly two dozen of which have been approved since 2025. 

Over the same period, there has been a relatively modest uptick in ILC applications. The FDIC in July last year approved a resolution withdrawing a Biden-era proposed rule requiring ILC applicants to prove independence from parent firms, serve community needs broadly and require public hearings on applications.  

Flex Rent, a rent payment financing firm applied for an ILC charter in July. Auto behemoths Stellantis, General Motors and Ford were approved for ILC charters this year. Nissan applied for an ILC charter in June last year, but has since dropped its bid. BMW and Toyota already have ILC charters. Edward Jones received approval for a charter in February. 

"We are excited at the prospect of establishing a new bank that will advance Upgrade's mission of bringing responsible and affordable credit to consumers," said Virginia Varela, CEO of Upgrade Bank in a release shared with American Banker. Varela was previously an officer at SoFi Bank and President & CEO of Golden Pacific Bank.

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The San Francisco-based fintech provides a host of different consumer loan products, including a mobile platform, buy-now-pay-later, personal loans, credit cards and car loans. The bank's initial board of directors would include Varela alongside Upgrade's co-founder Jeffrey Bogan and independent directors Raymond Specht, Daniel Quan, and Dalibor Snyder.

Like state non-member banks, ILCs are regulated by the FDIC and may offer various loan types and deposit-like accounts. But unlike traditional bank holding companies, the parent companies of ILCs are exempt from the Bank Holding Company Act, provided they technically abstain from offering nominally demand deposit accounts.  

Banking trade groups and consumer advocates have long opposed the ILC charter, pointing out the lack of Fed oversight of ILC parent companies and the mix of banking and commerce. The banking industry's opposition to the ILC model has been relatively muted in recent years, however, in part due to the comparatively greater pressure they feel from national trust chartered crypto-firms. 

ILCs, unlike national trust companies, are FDIC-insured, and therefore pay assessment fees to support the Deposit Insurance Fund, the reserve kept by the agency used to fund the rescue of failing banks.