In a letter submitted to the Federal Deposit Insurance Corporation (FDIC), the Consumer Federation of America (CFA), Americans for Financial Reform Education Fund, Professor Emeritus Arthur E. Wilmarth Jr., and the Center for Responsible Lending express their support for stricter scrutiny of applications for industrial loan company (ILC) charters.

With an ILC charter, a commercial firm can own a bank but evade full, consolidated supervision from the Federal Reserve. Historically, ILCs have been susceptible to economic downturns than other types of banks. A fundamental principle of U.S. banking policy has been to maintain a separation between commerce and banking, with the ILC charter a notable exception. For over a decade, after Walmart applied for an ILC charter, there was a de facto pause for new approvals, but the FDIC upended this phase when it approved two new charters in 2020. Subsequently, the FDIC received a surge of new applications. Some of those new applications came from firms that would have created “captive” banks with business models designed to serve the narrow audiences targeted by their commercial parent companies. Some policymakers have expressed concerns that a Big Tech firm or a dominant retailer might seek an ILC charter. With this proposal, the FDIC is putting forth specific criteria to demonstrate when a new combination could pose undue risks.

This proposal creates a rebuttable presumption that applications involving captive banks would be considered to present more risks and would be less likely to be capable of meeting the convenience and needs of the communities where they accept deposits. The letter emphasizes the importance of closing loopholes that could allow parent companies to evade regulatory oversight and advocates for ensuring that ILCs contribute positively to the communities they serve.