U.S, Sens. John Kennedy (R-LA) and Andy Kim (D-NJ) introduced legislation that seeks to ensure that companies that operate like banks follow the same rules and receive the same Federal Reserve oversight banks do.
Currently, companies can offer banking services through industrial loan companies (ILCs), whose parent companies are not subject to the same Federal Reserve oversight that traditional banks are. They are often referred to as shadow banks.
Kennedy and Kim’s bill—the Close the Shadow Banking Loophole Act—would close the loophole and create a level playing field.
“When a company looks like a bank, acts like a bank, and talks like a bank, Congress should treat it like a bank—but a loophole in federal law still lets some companies offer banking services without the same rigorous supervision. Our bipartisan Close the Shadow Banking Loophole Act would fix that gap and help keep Americans’ hard-earned money—and our financial system—safe,” Kennedy said.
Specifically, the Close the Shadow Banking Loophole Act would:
- Require a company that owns or controls an ILC to face the same standard Federal Reserve supervision as any other bank holding company under the Bank Holding Company Act.
- Allow existing ILCs to continue operating under current rules and give the Federal Deposit Insurance Corporation (FDIC) time to review ILC applications that are already pending.
- Block federal banking agencies from approving a change in ownership of an ILC unless the buyer is supervised by the Federal Reserve.
“If you get to act like a bank, you need to follow the same rules as banks. The sooner Congress acts to apply uniform standards to all banking institutions and closes these shadow banking loopholes, the better we protect consumers and support the stability and security of our overall banking system,” Kim said.
The bill is supported by Americans for Financial Reform, the Bank Policy Institute, the Center for Responsible Lending, the Consumer Federation of America, America’s Credit Unions, Independent Community Bankers of America, National Community Reinvestment Coalition, the National Consumer Law Center, and the U.S. Public Interest Research Group.
“We support the Close the Shadow Banking Loophole Act and urge swift passage of the bill into law. Companies that act like banks should be regulated like banks. The ILC loophole blurs the line between banking and commerce and undermines Congressional safeguards to the detriment of consumers and the safety of the financial system,” the organizations wrote in a joint statement.
ILCs were first created in 1910 to help provide loans to industrial workers, but non-bank companies use ILCs to offer banking services while avoiding the same level of oversight.