10/10/2024 | Press release | Distributed by Public on 10/10/2024 14:22
Washington, D.C. - The Bank Policy Institute commented today on an FDIC proposal to amend its rules governing industrial loan companies and their parent companies. Industrial loan companies are state-chartered institutions largely indistinguishable from banks, except for one key difference: their parent companies are commercial entities, such as car companies or internet retailers, not subject to federal regulation or supervision. As a result, unlike regulated bank holding companies, ILC parents can engage in commercial activities. The FDIC's proposal tightens these rules and applies additional scrutiny to ILCs and their parent companies.
What we're saying:
"We support the proposal but urge the FDIC to go even further to ensure regulations are applied consistently and equally," stated Paige Pidano Paridon, BPI Co-Head of Regulatory Affairs. "ILCs shouldn't be a shortcut to avoid compliance costs at the expense of financial stability or consumer safety. A company doing business as a bank should be regulated as a bank."
What we want:
The FDIC's current rule requires ILC applicants to agree to certain preconditions before their charter is approved, such as providing the FDIC with a list of all of the ILC parent's subsidiaries, submitting an annual report to the FDIC about the ILC parent's operations and undergoing an independent audit annually.
BPI recommends the following:
What's the background?
Industrial loan companies originated in the early 1900s to offer financing to industrial workers who couldn't obtain credit. These institutions evolved through the 20th century but were mostly small, local lenders. In 1987, Congress passed the Competitive Equality Banking Act, which included a loophole carving out ILCs from the definition of a "bank" under the Bank Holding Company Act. There were only 11 ILCs as of 1987 with an average asset size of less than $45 million. By 2005, there were 58 ILCs with combined assets of $213 billion.
This dramatic increase, along with widespread opposition to Walmart applying for an ILC in 2005, resulted in an FDIC moratorium on new ILC applications in July 2006. The moratorium was reimposed under the Dodd-Frank Act but was lifted in 2020 with the approval of ILC applications for fintech companies Square and Nelnet. The FDIC instituted its current set of rules for ILCs in 2020 and this latest proposal would strengthen these requirements.
To access a copy of the letter, please click here.
Additional resources:
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The Bank Policy Institute (BPI) is a nonpartisan public policy, research and advocacy group, representing the nation's leading banks and their customers. Our members include universal banks, regional banks and the major foreign banks doing business in the United States. Collectively, they employ almost 2 million Americans, make nearly half of the nation's small business loans, and are an engine for financial innovation and economic growth.
Sean Oblack
Bank Policy Institute
[email protected]