AFSA Reiterates Importance of ILCs in Congressional Testimony
Last week, AFSA emphasized to House Financial Services Committee members that ILCs are highly regulated and well-capitalized. AFSA’s testimony was entered into the record by Chairman Ed Perlmutter (D-CO)as part of a subcommittee hearing on current trends in financial institution charters with a particular focus on industrial loan companies (ILCs) and whether they are sufficiently regulated.
AFSA reiterated that industrial banks are subject to the same banking laws and regulated in the same manner as other depository institutions. They are supervised and examined both by the states that charter them and by the FDIC.
Opponents of ILCs claim they are insufficiently regulated because their parent companies are exempt from Federal Reserve Board supervision as opposed to bank holding companies. However, they fail to recognize that the FDIC and the relevant state banking departments provide the equivalent supervision, including requiring additional capital and liquidity support.
The hearing also featured discussions on the Office of the Comptroller of the Currency’s (OCC) true lender rule, regarding partnerships between third-party nonbanks and federal savings associations or national banks underwriting loans at interest rates exceeding state rate caps. In written testimony, Former Acting Comptroller of the Currency, Brian Brooks noted, “enforcing a state usury limit … did not make credit less expensive for low-to-moderate income borrowers, it made credit less available.”
During the hearing, Brooks mentioned that when states implement interest rate caps, individuals, usually low to moderate earners, “literally couldn’t borrow money,” and used an example of the late 1970’s higher interest rates to demonstrate that access to credit for people with low-to-moderate incomes will be reduced with interest rate caps.
Finally, the hearing included the introduction of two draft discussions of legislation: the “Banking Charter Review Act” and the “Close the ILC Loophole Act.” These proposed bills would place a 3-year moratorium on the approval of new ILCS applications and remove the exemption for ILCs in the definition of bank holding companies, respectively. AFSA opposes both bills. During the past five decades, industrial banks have compiled among the best records of capitalization and profitability of any group of banks in the nation, and they represent a sector of the financial services industry that should be encouraged to grow.
April 20th, 2021
