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Banks, Credit Unions and Consumer Groups Call for Passage of Bipartisan Solution to Close ILC Loophole

The National Community Reinvestment Coalition (NCRC) joined a broad coalition of bank and credit union associations and consumer organizations in submitting a letter Tuesday to the U.S. House Committee on Financial Services urging passage of the Close the ILC Loophole Act, introduced by Representatives Chuy Garcia (D-IL) and Lance Gooden (R-TX).

“Our banking and finance systems have long-standing guardrails to ensure they work in the public interest,” NCRC President and CEO Jesse Van Tol said. “It is wrong to let a few corporations hop over those guardrails to obtain consumer information and impair small businesses from competing, then hop back without ever meeting the obligations of a real bank. We encourage all members of Congress to join Reps. Garcia and Gooden and correct that mistake by closing the industrial loan corporation (ILC) loophole.”

The ILC loophole allows large technology companies — such as Japanese e-commerce firm Rakuten, an international conglomerate  — and other commercial firms to own and operate what is essentially a full-service FDIC-insured bank, and do so entirely free from the regulatory oversight, activity limitations and prudential safeguards that apply to every other person who owns or operates a federally-insured depository institution.

“Although ILCs have the powers of a commercial bank, their corporate owners — unlike the owners of commercial banks — are not subject to consolidated supervision and regulation by a federal banking agency, which can allow risks to build up in the organization outside the view of any federal supervisor. Simply put, this regulatory loophole creates safety and soundness risks for the institution, risks to the financial system and additional risks for consumers and taxpayers,” the groups wrote in their letter. “ILC owners should not have the ability to sell their status rights to the highest bidder and therefore exploit consumer data, undermine trust in our banking system and otherwise put our financial system at risk. To put it more simply, allowing existing ILCs to transfer their rights to an unaffiliated party would be the legislative equivalent of attempting to close the barn door but leaving the side of the barn wide open.”

The organizations represented in the letter include the 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. PIRG.

The Close the ILC Loophole Act would help to protect the longstanding separation between banking and commerce and applies new rules to the sale and transfer of an existing ILC so that companies currently taking advantage of these privileges aren’t able to pass along their special exemptions indefinitely.

To access a copy of the letter, please click here.

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Redlining and Neighborhood Health

Before the pandemic devastated minority communities, banks and government officials starved them of capital.

Lower-income and minority neighborhoods that were intentionally cut off from lending and investment decades ago today suffer not only from reduced wealth and greater poverty, but from lower life expectancy and higher prevalence of chronic diseases that are risk factors for poor outcomes from COVID-19, a new study shows.

The new study, from the National Community Reinvestment Coalition (NCRC) with researchers from the University of Wisconsin–Milwaukee Joseph J. Zilber School of Public Health and the University of Richmond’s Digital Scholarship Lab, compared 1930’s maps of government-sanctioned lending discrimination zones with current census and public health data.

Table of Content

  • Executive Summary
  • Introduction
  • Redlining, the HOLC Maps and Segregation
  • Segregation, Public Health and COVID-19
  • Methods
  • Results
  • Discussion
  • Conclusion and Policy Recommendations
  • Citations
  • Appendix

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