WASHINGTON—The Independent Community Bankers of America is expressing its “strong support” for a bill that would close the loophole that allows industrial loan companies (ILCs) and their parent companies to “skirt regulatory oversight, endangering consumers and the economy.”
Introduced by Senate Banking Committee member John Kennedy (R-LA), the Eliminating Corporate Shadow Banking Act of 2019 would close loophole in the Bank Holding Company Act the allows commercial and fintech companies to own or acquire ILCs chartered in only a handful of states without being subject to federal consolidated supervision, leaving a dangerous gap in safety and soundness oversight.
In what the ICBA called a comprehensive white paper issued earlier this year, the group detailed the transformation of the ILC charter into the fashionable charter of choice for financial firms seeking to benefit from the federal safety net while avoiding legal restrictions and company oversight.
Avoiding ‘Risk’
"ICBA strongly supports the Eliminating Corporate Shadow Banking Act to close the industrial loan company loophole, which allows commercial interests to own full-service banks, avoid consolidated supervision, and threaten the financial system," ICBA President and CEO Rebeca Romero Rainey said. "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. ICBA and the nation's community banks thank Sen. Kennedy and urge Congress to advance this critical legislation to ensure a level regulatory playing field, maintain the separation of banking and commerce, and avoid risks for the American taxpayer."
While the FDIC and Congress have previously placed moratoriums on the use of ILCs, the ICBA said the “issue has become increasingly relevant as nonbank technology companies such as Rakuten, Square, SoFi, and Nelnet have sought ILC charters under Utah law and filed deposit insurance applications following ICBA’s successful campaign against Walmart’s bid for an ILC charter in 2006.”