WASHINGTON––CUNA and NAFCU have joined with one bank trade group and a coalition of consumer groups in submitting a letter to the U.S. House Committee on Financial Services urging passage of the Close the ILC Loophole Act.
The legislation, introduced by Reps. Chuy Garcia (D-IL) and Lance Gooden (R-TX) seeks to close the ILC loophole that allows large technology companies — such as Japanese e-commerce firm Rakuten, whose primary business is monetizing consumer data — and other commercial firms to own and operate what is essentially a full-service FDIC-insured bank. As a result, the companies are able to “do so entirely free from the regulatory oversight, activity limitations and prudential safeguards that apply to every other person who owns or operates a federally-insured depository institution,” the organizations said.
‘Powers of Commercial Bank, But…’
“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,” the letter reads. “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. 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.”
The Signatories
In addition to CUNA and NAFCU, others signing the letter include Americans for Financial Reform, Bank Policy Institute, Center for Responsible Lending, Consumer Federation of America, Independent Community Bankers of America, Mid-Size Bank Coalition of America, National Consumer Law Center, National Community Reinvestment Coalition and U.S. PIRG.
According to the signatories, the Close the ILC Loophole Act would help to protect the longstanding separation between banking and commerce and 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.