Senator Brown Proposes Increased Regulation on Industrial Loan Companies

Senate Banking Committee Chair Sherrod Brown (D-OH) introduced S.5189, the Close the Shadow Banking Loophole Act, which would subject industrial loan companies ("ILCs") to the same rules and consumer protections as traditional banks under the supervision of the Federal Reserve. The bill also provides for a carve-out on existing ILCs. The bill was co-sponsored by Senator Bob Casey (D-PA) and Senator Chris Van Hollen (D-MD).

The bill received support from several industry associations, including Americans for Financial Reform, Bank Policy Institute, Center for Responsible Lending, Consumer Federation of America, Credit Union National Association, Independent Community Bankers of America, Mid-Size Bank Coalition of America, National Association of Federally-Insured Credit Unions, National Consumer Law Center, National Community Reinvestment Coalition and U.S. Public Interest Research Group (together, "the Associations").

In a letter to the Committee, the Associations warned that the regulatory arbitrage enabled by the ILC charter provides a way for any type of organization, including large technology firms, to acquire a full-service, FDIC-insured bank without being subject to the same prudential standards as traditional banks. This loophole, they argue, exists despite a general prohibition from Congress regarding the mixing of banking and commerce. The Associations urged Congress to pass legislation to close the ILC loophole and eliminate (i) consumer protection risks and (ii) the regulatory disadvantages for traditional banks.