ICBA Supports Bill to Close Industrial Loan Company Loophole
Washington, D.C (Nov. 13, 2019)—The Independent Community Bankers of America® (ICBA) today expressed its strong support for new legislation that would close the loophole that allows industrial loan companies 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 the ILC loophole to support a safe and sound financial system and to maintain the important separation of banking and commerce.
"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."
A loophole in the Bank Holding Company Act 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 a comprehensive white paper issued earlier this year, ICBA 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.
Recognizing the dangers of mixing banking and commerce, both the FDIC and Congress have previously placed moratoriums on the use of ILCs. However, 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.
The Eliminating Corporate Shadow Banking Act would reform the Bank Holding Company Act to permanently close the loophole while grandfathering existing ILCs. ICBA looks forward to continuing to work with all concerned policymakers to close the ILC loophole and maintain the separation of banking and commerce.
The Independent Community Bankers of America® creates and promotes an environment where community banks flourish. With more than 50,000 locations nationwide, community banks constitute 99 percent of all banks, employ nearly 750,000 Americans and are the only physical banking presence in one in three U.S. counties. Holding more than $5 trillion in assets, nearly $4 trillion in deposits, and more than $3.4 trillion in loans to consumers, small businesses and the agricultural community, community banks channel local deposits into the Main Streets and neighborhoods they serve, spurring job creation, fostering innovation and fueling their customers’ dreams in communities throughout America. For more information, visit ICBA’s website at www.icba.org.
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