Industrial loan company loophole avoids supervision, violates longstanding policy
Washington, D.C. (Aug. 19, 2022) — The Independent Community Bankers of America (ICBA) today called on the FDIC to reject the deposit insurance application of Ford Credit Bank as an industrial loan company, or ILC, which would allow the company to skirt regulatory oversight and violate longstanding U.S. policy separating banking and commerce.
In a letter to the FDIC, ICBA said granting deposit insurance to the Ford Motor Co. subsidiary would exacerbate the ILC loophole, which allows commercial and tech companies to own or acquire ILCs chartered in a handful of states without being subject to federal consolidated supervision.
With the House Financial Services Committee recently advancing ICBA-advocated legislation to close the ILC loophole, ICBA said the approval of Ford’s application would result in another too-big-to-fail commercial company posing outsized risks to the Deposit Insurance Fund, consumers, and the financial system.
"While ICBA and community bankers continue calling on Congress to close the industrial loan company loophole, Ford’s application to form a new ILC that lacks consolidated oversight would only put the Deposit Insurance Fund and consumers at greater risk,” ICBA President and CEO Rebeca Romero Rainey said today. "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."
In its letter, ICBA also said the Ford application poses risks of:
- Conflict of interest. With Ford Credit Bank’s proposed business model focused on lending to Ford customers and dealerships, Ford could pressure its bank to lower underwriting standards and make risky loans.
- More bailouts. General Motors's failed incursion into banking, which led to the collapse of GMAC, contributed to the 2008 financial crisis and required three rounds of taxpayer-funded bailouts to save GM — providing a case study on the dangers of commercial-financial conglomerates.
- Consumer harm. Ford’s request to designate Ford Credit Bank as a limited-purpose bank would limit its obligations under the Community Reinvestment Act, restricting assessment of its auto lending service to low- and moderate-income customers.
In a comprehensive white paper, ICBA details the transformation of the ILC charter into the fashionable charter of choice for firms seeking to benefit from the federal safety net while avoiding oversight. ICBA will continue working with the FDIC and Congress to address the ILC loophole and to maintain the separation of banking and commerce.
The Independent Community Bankers of America® creates and promotes an environment where community banks flourish. ICBA is dedicated exclusively to representing the interests of the community banking industry and its membership through effective advocacy, best-in-class education, and high-quality products and services.
With nearly 50,000 locations nationwide, community banks constitute roughly 99 percent of all banks, employ nearly 700,000 Americans and are the only physical banking presence in one in three U.S. counties. Holding nearly $5.9 trillion in assets, over $4.9 trillion in deposits, and more than $3.5 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.