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Industrial Loan Company Charters Pose Risks to Consumers and the Economy: A Moratorium Is Needed

July 13, 2020
Payday and Other Small Dollar Loans
Payday Loans
Policy & Legislation

Industrial loan companies (ILCs) or industrial banks (IBs) (together, “ ILCs”) typically enjoy the privileges of traditional banks but pose two significant risk factors unique to ILCs:

  1. They are not subject to the Federal Reserve’s supervision, which occurs at the consolidated level (i.e., the ILC’s parent company, the ILC, and their affiliates); and
  2. They permit the intermingling of commercial and financial activity, prohibited for traditional banks.

In light of these concerns, the FDIC did not permit any new ILCs for over a decade, until March of this year, when it approved two. Now, the FDIC has a proposed rule outstanding that threatens to open the floodgates to new ILC charters. New ILCs pose threats both to the financial system as a whole and to consumers, as they offer non-banks a far easier path to federal interest rate preemption that they would otherwise have--or than has even been intended under the law. The result would be an increase in high-cost predatory lending that avoids state interest rate caps and causes severe harm to consumers.