FDIC Approves ILC Rule Promoting Predatory Lending

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Yesterday, the Federal Deposit Insurance Corporation (FDIC) voted to finalize its proposed rule on industrial banks and industrial loan companies (ILCs) and agency approval of new ILC charters.

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“Families all across the country continue to suffer from the economic fallout of the worsening COVID-19 pandemic, but the FDIC has approved a rule that does all the wrong things,” said Linda Jun, senior policy counsel at Americans for Financial Reform Education Fund. “It will leave people in precarious financial situations more vulnerable by undermining states’ ability to protect their citizens, and facilitate the spread of predatory lending.”

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FDIC’s ILC Rule Jeopardizes The Safety Of The Economy

The FDIC’s ILC rule threatens state-level consumer protections, further erodes the traditional separation between banking and commerce, and jeopardizes the safety and soundness of the financial system and the economy as a whole.

By making it easier for predominantly online non-bank lenders to obtain bank charters, while avoiding consolidated supervision by the Federal Reserve, the FDIC ILC rule paves the way for non-banks to claim federal preemption of important state consumer protections without the accompanying oversight. This rule will also allow non-banks to evade state interest rate caps that protect vulnerable consumers from predatory loans.

Further, the FDIC is also opening the door to the acquisition of ILCs by nonfinancial firms. Any companies acting as banks — regardless of the financial or nonfinancial nature of their parent companies — should be regulated as banks, under consolidated supervision. Companies acting as bank holding companies should be regulated as bank holding companies. But the FDIC has chosen to give ILCs all the benefits without the crucial safeguards, which ultimately puts our entire financial system at risk.

In July 2020, Americans for Financial Reform Education Fund and Demand Progress Education Fund submitted a comment opposing the proposed rule.

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