Community Banks Renew Fight Against ILCs

Industrial loan companies present “outsized risks” to the Federal Deposit Insurance Corporation (FDIC) and should be denied applications, according to the Independent Community Bankers of America (ICBA).

Companies including General Motors, Ford, and internet technology company Rakuten all currently have applications pending with the FDIC to register subsidiaries as depository institutions, but the ICBA argued these applications should be rejected.

The applications “create an undue risk to the DIF and are unlikely to satisfactorily serve the convenience and needs of the community”, the trade body said.

“The FDIC has the statutory duty to deny deposit insurance applications from entities that fail to meet the standards of the Federal Deposit Insurance Act, which is the case for pending applications from GM Financial Bank, Ford Credit Bank, and Rakuten Bank America,” said ICBA president and CEO Rebeca Romero Rainey.

“Ultimately, Congress should close the industrial loan company loophole to mitigate risks to the Deposit Insurance Fund and consumers, and to preserve the long-standing US policy separating banking and commerce.

“Any company that wishes to own a full-service bank should be subject to the same restrictions and supervision that apply to any other bank holding company.”

The ICBA maintained that so-called industrial loan companies, or ILCs, “present outsized risks to the Deposit Insurance Fund, financial stability, consumers, and taxpayers”.

In December, Democrat senators Sherrod Brown, Bob Casey, and Chris Van Hollen introduced legislation to require any ILC to “be subject to the same rules and consumer protections as traditional banks”.

They argued that existing rules created a “loophole” for fintech companies to get federal approval without having to go through the same processes as traditional banks, even though they were providing similar services.

The ICBA supported the legislation along with other banking and consumer groups, arguing that the loophole had made the registration process “the fashionable charter of choice for firms seeking to benefit from the federal safety net while avoiding oversight”.