A coalition of bank and credit union associations, among others, are urging Congress to pass a bill that would close the industrial loan company (ILC) loophole.
The Close the ILC Loophole Act (H.R. 5912) would prevent large technology companies and other commercial firms from owning what is essentially a full-service FDIC-insured bank, free from regulatory oversight and prudential safeguards.
“Although ILCs have the powers of a commercial bank, their corporate owners — unlike the owners of commercial banks — are not subject to consolidated supervision and regulation by a federal banking agency, which can allow risks to build up in the organization outside the view of any federal supervisor. Simply put, this regulatory loophole creates safety and soundness risks for the institution, risks to the financial system, and additional risks for consumers and taxpayers,” the coalition wrote to the leaders of the House Financial Services Committees. Chair Maxine Waters (D-CA) and Ranking Member Patrick McHenry (R-NC).
It was authored and signed by representatives from the Americans for Financial Reform, Bank Policy Institute, Center for Responsible Lending, Consumer Federation of America, Credit Union National Association, Independent Community Bankers of America, Mid-Size Bank Coalition of America, National Association of Federally-Insured Credit Unions, National Consumer Law Center, National Community Reinvestment Coalition and U.S. PIRG.
“ILC owners should not have the ability to sell their status rights to the highest bidder and therefore exploit consumer data, undermine trust in our banking system and otherwise put our financial system at risk. To put it more simply, allowing existing ILCs to transfer their rights to an unaffiliated party would be the legislative equivalent of attempting to close the barn door but leaving the side of the barn wide open,” they added.
The Close the ILC Loophole Act — introduced by U.S. Reps. Chuy Garcia (D-IL) and Lance Gooden (R-TX) — would help protect the separation between banking and commerce. Specifically, it applies new rules to the sale and transfer of an existing ILC so that companies currently taking advantage of these privileges aren’t able to pass along their special exemptions indefinitely.