Ford Motor Company should be denied deposit insurance for its proposed new Ford Credit industrial loan company (ILC) charter, the National Community Reinvestment Coalition (NCRC), the National Consumer Law Center (on behalf of its low-income clients), Americans for Financial Reform Education Fund, and the Center for Responsible Lending wrote to the Federal Deposit Insurance Corporation (FDIC) on Wednesday.
The ILC charter is a loophole that allows a commercial firm to benefit from the privileges of owning a bank without requiring it to undergo consolidated supervision by the Federal Reserve. The ILC is an exception to a longstanding policy separating banking and commerce that goes back to the Great Depression.
The letter calls on the FDIC to recognize the risks this application could create for the financial system’s safety and soundness, emphasizes that the proposed community reinvestment plan is far too small for a financial institution of this size, and highlights the unique threats posed by integrating a bank within a company that can track consumer behavior through electric vehicle (EVs) technology.
“A banking charter is a privilege, not a resource to improve a manufacturer’s bottom line,” said Jesse Van Tol, CEO of NCRC. “While Ford would benefit, the application lacks adequate community reinvestment commitments and would give Ford Credit too much insight into the driving habits of EV owners. We are confident that the FDIC will do the right thing by rejecting Ford’s application.”
“Time and time again, we have seen the catastrophe that ensues when companies behave like banks but are not regulated as such,” said Renita Marcellin, a senior policy analyst at Americans for Financial Reform. “Commitments to creating more green vehicles, although noble, are not a sufficient reason to skirt our banking laws that are meant to protect consumers and taxpayers.”
NCRC, Americans for Financial Reform and Center for Responsible Lending recently collaborated in a joint effort with several banking and credit union trades to support the successful markup of H.R. 5912, the Close the ILC Loophole Act, and to urge its consideration in the Senate.
The pending legislation to close the ILC loophole reflects mounting fears that a Big Tech firm or a mega-retailer might receive a charter, injecting new worry into an already troubled business model.
ILCs have a poor track record on financial stability. Many ILCs have either failed or encountered difficulties that required intervention. During the financial crisis, GMAC, the ILC held by General Motors, encountered difficulties that eventually required $17 billion in funding from the Troubled Asset Relief Program. Thirteen ILCs failed in the 1980s and another two in 1999 and 2003. In addition to the 25 existing ILCs, GM Financial and 3 other firms currently have pending ILC applications. The FDIC, which had suspended new approvals in 2006 in response to Walmart’s application, approved 2 ILC deposit insurance applications in March 2020.