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

Washington, D.C. (April 5, 2022) - A broad coalition of bank and credit union associations and consumer organizations today submitted a letter to the U.S. House Committee on Financial Services urging passage of the Close the ILC Loophole Act (H.R. 5912), introduced by Representatives Chuy Garcia (D-IL) and Lance Gooden (R-TX).

The ILC loophole allows large technology companies - such as Japanese e-commerce firm Rakuten, whose primary business is monetizing consumer data - 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.

"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.

About ICBA
The Independent Community Bankers of America® creates and promotes an environment where community banks flourish. ICBA is dedicated exclusively to representing the interests of the community banking industry and its membership through effective advocacy, best-in-class education, and high-quality products and services.

With nearly 50,000 locations nationwide, community banks constitute roughly 99 percent of all banks, employ nearly 700,000 Americans and are the only physical banking presence in one in three U.S. counties. Holding nearly $5.9 trillion in assets, over $4.9 trillion in deposits, and more than $3.5 trillion in loans to consumers, small businesses and the agricultural community, community banks channel local deposits into the Main Streets and neighborhoods they serve, spurring job creation, fostering innovation and fueling their customers' dreams in communities throughout America. For more information, visit ICBA's website at www.icba.org.

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