CBA Calls for Continued Efforts to Level Playing Field, Highlights Dangers of ILC Charters Without Adequate Supervision


CBA Calls for Continued Efforts to Level Playing Field, Highlights Dangers of ILC Charters Without Adequate Supervision


WASHINGTON – In advance of the House Subcommittee on Consumer Protection and Financial Institutions hearing today entitled “Banking Innovation or Regulatory Evasion? Exploring Trends in Financial Institution Charters,” the Consumer Bankers Association wrote a letter to Subcommittee Chair, Rep. Ed Perlmutter (D-CO), and Ranking Member, Rep. Blaine Luetkemeyer (R-MO), raising concerns that industrial loan company (ILC) charters could be used by commercial companies, which are not subject to the same regulatory oversight and statutory requirements, “as banks as a conduit into the banking system and federal safety net while engaging in activities that have always been off limits for regulated banks and their holding companies.”


Explaining CBA’s history with ILCs and noting their evolution in banking, CBA President and CEO Richard Hunt wrote:


“The future of the financial institution charters, specifically ILC charters, are of particular interest to CBA because our association was formed in 1919 as the Morris Plan Bankers Association for the purpose of promoting America’s first industrial banks, then known as Morris Plan Banks. Advancements in the financial marketplace have allowed the ILC charter to evolve from its simple beginnings of providing small loans to industrial workers. Our members are especially concerned the rise in non-financial commercial companies seeking ownership of ILCs may facilitate perilous growth of shadow banking and threaten the Deposit Insurance Fund (the DIF) and the safety and soundness of the traditional banking system.”


Commending the work the FDIC has done to begin addressing these potential risks to the banking system, Hunt added:


“CBA believes the ILC charter and choice-of-charter plays an important role in facilitating a competitive financial system, however, the federal safety net should not be used to subsidize commercial parent companies unless these entities are subject to the same rigorous scrutiny as bank holding companies within the regulated financial system. Although Congress authorized the current framework, the FDIC is right to issue rules leveling the playing field and imposing safeguards on the ILC charter to provide supervisory parity with the bank charter. In this regard, CBA believes FDIC’s rule is a step in the right direction and we applaud the FDIC for formalizing and strengthening its existing processes for supervising ILCs to mitigate risk to the DIF in the absence of consolidated supervision.”


Click here to read the full letter.


Click here to read CBA’s July 2020 letter to the FDIC on parent companies of industrial banks and ILCs.




About the Consumer Bankers Association:

The Consumer Bankers Association represents America’s leading retail banks. We promote policies to create a stronger industry and economy. Established in 1919, CBA’s corporate member institutions account for 1.7 million jobs in America, extend roughly $4 trillion in consumer loans and provide $275 billion in small business loans annually. Follow us on Twitter @consumerbankers.