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Industrial Loan Companies (ILCs)
 Issue
The proper ownership and regulatory structure for industrial loan companies (ILCs).
Position Statement
ABA supports the existence and viability of the industrial loan company charter as a choice. However, ABA opposes any new affiliations between non-financial commercial firms and ILCs and believes that they must operate under commercial affiliation restrictions substantially similar to those Congress placed on unitary savings and loan holding companies in the Gramm-Leach-Bliley Act.
Explanation
One of ABA’s core principles is that financial institutions should be able to choose the charter that best fits the needs of their customers and communities. This includes the ILC charter. However, because of the unique regulatory structure for ILCs, they are eligible to be controlled by non-financial commercial entities in a way that is not available to other depository institutions. This has the potential to create concerns for competition and safety and soundness.
While ABA supports the existence and viability of the industrial loan company charter as a choice, ABA opposes any new affiliations between non-financial commercial firms and ILCs. ABA believes that ILCs must operate under commercial affiliation restrictions substantially similar to those Congress placed on unitary savings and loan holding companies by the Gramm-Leach-Bliley Act. Additionally, while the FDIC has always been a diligent regulator of the ILC industry, significant gaps exist in its statutory authority to supervise and regulate ILC holding companies and their affiliates. ABA believes Congress should fully consider the issue of new commercially owned ILCs.
ILCs are state-chartered and state-regulated depository institutions whose deposits are insured by the FDIC. When Congress passed the Competitive Equality Banking Act of 1987 it specifically exempted industrial loan companies or industrial banks from the definition of “bank” for the purposes of restrictions on commercial ownership. While these institutions are subject to FDIC examination and the same banking laws that apply to all FDIC-insured institutions, commercial parent companies may own them without becoming bank holding companies or financial holding companies. This permits the non-financial commercial firms to avoid supervision by a consolidated supervisor such as the Office of Thrift Supervision or Federal Reserve.
Congress has repeatedly and consistently prohibited the mixing of banking and non-financial commerce where such mixture posed a threat to the confidence in our banking system. Congress once again affirmed its concerns about mixing banking and non-financial commerce with the Gramm-Leach-Bliley Act of 1999. Prior to that year, U.S. banking laws did not restrict non-financial companies from owning and operating savings associations. However, the Gramm-Leach-Bliley Act placed restrictions on unitary savings and loan holding companies that derive on a consolidated basis more than 15 percent of their gross revenues from activities that are non-financial in nature. Existing commercial ownership was grandfathered, but no new non-financial commercial affiliations were allowed.
Representatives Paul Gillmor and Barney Frank included similar restrictions on ILCs in legislation introduced in the last Congress and reintroduced in the 110th Congress. That bill passed the House on May 21, 2007. On February 13, 2008, the Senate Banking Committee approved ABA-supported legislation by an 11-10 party line vote. There has been no action on the Senate floor. ABA is working to achieve ILC legislation that is consistent with the objectives stated above. Moreover, ABA believes that Congress should have the opportunity to consider the ILC issue fully before any new action is taken on ILC affiliations involving commercial entities.
Contact for further information: Mark Tenhundfeld (202) 663-5042
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