Flawed FDIC Industrial Loan Charter final rule will undermine CRA, allow lenders to evade state consumer protections

This week, the Federal Deposit Insurance Corporation (FDIC) announced a final rule on industrial banks and industrial loan companies (ILCs), allowing nonbank parent companies to apply for and receive ILC charters, enabling these lenders to make loans across the country with narrow and insufficient community reinvestment obligations. Nonbanks that receive ILC charters would also avoid oversight from the Federal Reserve Board, while at the same time evading state licensing requirements and interest rate protections. 

Jesse Van Tol, CEO of the National Community Reinvestment Coalition (NCRC), made the following statement:

“This rule by the FDIC is the latest in a series of actions that federal regulators have taken to give nonbanks the benefits of bank charters with none of the obligations. The FDIC’s rule will invite a flood of applications for ILCs that will be subject to only minimal requirements under the Community Reinvestment Act (CRA), a critical anti-redlining law. Earlier this year, we called on the FDIC to hold off on making this rule until CRA had been modernized. They didn’t listen. The result will be a series of ILC approvals with weak and inadequate CRA plans with lending commitments to lower-income people only in the cities where the ILC is headquartered. For a large ILC, that would be a fraction of its total market footprint. 

“The FDIC rule fails to address considerable antitrust and safety and soundness concerns and will potentially allow large commercial companies to own ILC banks without placing caps or restraints on the size of the ILCs or limiting the financial dealings between the parent and the bank.

“The final rule also allows nonbanks to offer loans across the country without complying with critical state interest rate laws that protect borrowers from high-cost lending.

“Banking charters are a privilege, not a right. Unfortunately, the FDIC is taking the position that the benefits of a bank charter should not come with critical and long-standing obligations to invest in communities and protect against abusive lending. As the nation grapples with the economic impact of a global pandemic, the FDIC should be holding lenders to higher standards, not lower ones.”

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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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