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NAFCU to HFSC: Close the ILC loophole and level the playing field for all FIs
NAFCU joined with other financial services trade associations and consumer groups Tuesday to write House Financial Services Committee Chairwoman Maxine Waters, D-Calif., and Ranking Member Patrick McHenry, R-N.C., strongly encouraging the committee to close the industrial loan company (ILC) loophole in current law by passing The Close the ILC Loophole Act, legislation introduced by Representatives Chuy Garcia, D-Ill. and Lance Gooden, R-Texas.
In the letter, the groups explain that ILCs operate under a special exemption in federal law that permits other organizations to control a full-service FDIC-insured bank without being subject to the same regulatory oversight as others in the U.S. financial system. Because ILCs were initially created for smaller financial institutions, large commercial companies have taken advantage of the ILC charter to gain more access to the U.S. financial system.
“It should come as no surprise that several large companies that used the loophole to acquire ILCs, evading the type of consolidated supervision meant to ensure soundness and regulatory compliance, then required public bailouts during the 2007-2008 financial crisis,” argued the group.
In addition, the trade groups mentioned that the loophole provides a way for technology firms to offer a wide variety of services similar to that of a full-service bank – without being subject to the same information security as regulated bank holding companies.
“The time is now for Congress to close the ILC loophole before it is further exploited by firms seeking to gain all of the advantages of an FDIC-insured bank charter without the concomitant supervision and regulation that Congress has established for the corporate owners of full-service insured banks,” concluded the groups. “H.R. 5912, The Close the ILC Loophole Act, addresses these concerns and is a comprehensive solution to closing the ILC loophole once and for all.”
Read the full letter here. NAFCU will continue to advocate for effective financial regulation that provides a level playing field for credit unions and proper consumer protections.