CLOSE INDUSTRIAL LOAN COMPANY LOOPHOLE INDUSTRIAL LOAN COMPANIES: “BANKS” In the age of big data, social media and e-commerce OWNED BY COMMERCIAL COMPANIES conglomerates, this threat is greater now than it was in Industrial loan companies (ILCs) are the functional the 1930s. We should be cautious before giving these equivalent of full-service banks. They engage in companies yet more reach into the economic life of commercial and consumer lending as well as deposit Americans by allowing them to leverage ownership taking and have access to the Federal Reserve of bank-like ILCs. The integration of technology and payments system. A loophole in the Bank Holding banking firms would not only result in an enormous Company Act allows commercial companies to own concentration of financial and technological assets but or acquire ILCs, subject only to approval by the FDIC. also would pose conflicts of interest in our banking Federal law prohibits all other full-service banks, system and privacy concerns for consumers. whether federal or state chartered, from being owned What will happen when social media giants extend their by commercial companies. reach into our financial lives? Access to Americans’ The ILC charter historically been limited and may be personal, financial data—monthly paycheck direct issued by only a handful of states, though it grants the deposits, account balances, expense patterns, political power to operate nationwide. Prior to 2020, the FDIC contributions, history of late fees, transaction records, had not approved deposit insurance for a new ILC for etc.—would create a whole new level of targeted more than 10 years. Since 2020, the FDIC has approved marketing and analytics-based price manipulation. two new ILCs and an additional six applications are pending, including one from Rakuten, the “Amazon A BLIND SPOT IN FINANCIAL SUPERVISION of Japan.” Absent Congressional intervention, we Commercial companies that own ILCs are not subject expect a flood of new applications with the potential to to federal consolidated supervision. This leaves a fundamentally shift the American economic landscape. dangerous gap in safety and soundness oversight, Given what’s at stake, ILC policy should be debated described as a “blind spot” in a GAO report. and deliberated in Congress, not left to the discretion The Bank Holding Company Act provides for of the FDIC. consolidated supervision by the Federal Reserve of the holding company and its affiliates as a group. This MIXING BANKING AND COMMERCE is important because, according to the Fed, “financial FLOUTS LONG-STANDING trouble in one part of an organization can spread rapidly AMERICAN ECONOMIC POLICY to other parts of the organization.” Only consolidated The prohibition on mixing banking and commerce was supervision allows for risk monitoring across corporate first established in the 1930s in response to concerns boundaries. Because ILCs are exempt from the BHCA, about concentration of economic ILC parent companies are not subject to consolidated power. Mixing banking and commerce supervision. This creates an Commercial inevitably creates market distortions unacceptable level of risk. ownership and leads to of ILCs has the cross-sector Support legislation potential to change Such a consolidation. to address the ILC MESSAGES the American far-reaching loophole, such as the FOR YOUR financial services change must be “Close the ILC Loophole MEMBERS OF landscape. debated in Congress, Act,” sponsored by Rep. CONGRESS not left to the Jesús “Chuy” García. discretion of the FDIC. EVT_1149A21.