An industrial loan company is a state-chartered, FDIC-insured depository institution whose parent company is exempt from registering as a bank holding company under federal law. That exemption is the whole reason the charter exists. It lets retailers, automakers, technology firms, and other commercial businesses own a full-service insured bank without submitting the rest of their operations to Federal Reserve supervision or the ownership limits that normally apply to banking organizations. Most industrial loan companies (also called industrial banks) are chartered in Utah, with smaller numbers in a handful of other states.
The Exemption That Defines the Charter
The Bank Holding Company Act of 1956 defines “bank” broadly. Under 12 U.S.C. § 1841(c)(1), the term captures any insured bank and any institution that both accepts checkable deposits and makes commercial loans. If you own a “bank” under that definition, you must register as a bank holding company, accept the Federal Reserve’s consolidated supervision, and confine your activities to those “closely related to banking.”1GovInfo. United States Code Title 12 Chapter 17
The Competitive Equality Banking Act of 1987 carved out an explicit exception for industrial loan companies. Congress excluded them from the BHCA’s definition of “bank,” provided the ILC was organized under the laws of a state that had an ILC statute in effect or under consideration as of March 5, 1987.2Federal Deposit Insurance Corporation. Final Rule: Parent Companies of Industrial Banks and Industrial Loan Companies Because an ILC is not a “bank” under the BHCA, its owner does not become a bank holding company. A retailer can own an ILC and keep selling merchandise. An automaker can own an ILC and keep making cars. A traditional bank holding company cannot do either of those things.
The charter is small in the context of the overall banking system. The GAO has noted that ILCs and similar exempt institutions represent a modest fraction of total banking assets but raise distinct policy questions because their holding companies fall outside the BHCA framework.3U.S. Government Accountability Office. Bank Holding Company Act Characteristics and Regulation of Exempt Institutions and the Implications of Removing the Exemptions
A Short History
Industrial loan companies first appeared in the early 1900s as small lenders offering installment credit to factory workers who could not qualify at traditional banks. The “industrial” label stuck.4Federal Deposit Insurance Corporation. Notice of Proposed Rulemaking on Industrial Loan Companies For most of the twentieth century they remained niche institutions, often uninsured. The Garn-St Germain Act of 1982 opened federal deposit insurance to ILCs regulated similarly to commercial banks, and the 1987 CEBA amendments created the BHCA exemption. Together those two changes turned a minor category of consumer lender into the primary vehicle for non-financial corporations to enter the banking system.
Which States Charter Them
Only a handful of states have the statutory framework needed to charter an ILC that qualifies for the BHCA exemption. Those states are Utah, Nevada, California, Minnesota, Indiana, and Hawaii. In practice, Utah dominates. It has the longest track record with the charter and the most developed regulatory infrastructure for these institutions.5Utah Department of Financial Institutions. Industrial Banks The choice of state matters because each one sets its own capital minimums, examination schedules, and supervisory expectations.
What an ILC Does and Who Owns One
An industrial loan company operates with essentially the same banking powers as any state-chartered commercial bank. It accepts deposits insured up to $250,000 per depositor, makes consumer and commercial loans, issues credit cards, finances real estate, and processes payments. Access to a Federal Reserve master account lets an ILC clear and settle through the national payment system, subject to the Fed’s evaluation of the risk each institution poses.6Federal Reserve Board. Master Account and Services Database FAQs
The parent companies fall into a few recognizable groups:
- Captive finance arms of manufacturers. Automakers and equipment makers use ILCs to fund their own lending with insured deposits rather than relying entirely on wholesale capital markets. Ford and General Motors have both received ILC approvals in recent years.
- Credit card issuers and specialty consumer lenders that want a stable, low-cost deposit base for their lending.
- Fintech companies that want to offer checking accounts, digital lending, and payments directly instead of partnering with an existing bank.
- Large retailers and financial services firms. A retailer can use its ILC to issue branded credit cards and finance customer purchases; brokerages such as Edward Jones have pursued ILC charters to add banking alongside investment accounts.
In each case the ILC functions as an in-house bank, funding the parent’s financial products with insured deposits rather than more expensive market borrowing.
How an ILC Is Regulated
The BHCA exemption applies to the parent, not to the bank. The ILC itself is heavily regulated under a dual state-federal structure.
The Chartering State
The state banking regulator is the ILC’s primary supervisor. In Utah, that is the Department of Financial Institutions, which grants the charter, conducts regular examinations, and enforces state banking law. Utah has stated that industrial banks are subject to the same supervisory processes as any other bank chartered in the state.5Utah Department of Financial Institutions. Industrial Banks
The FDIC
The FDIC provides federal oversight through deposit insurance and its own safety-and-soundness examinations, typically coordinated with the state regulator. Examiners rate capital adequacy, asset quality, management, earnings, liquidity, and sensitivity to market risk, producing a composite CAMELS score.7Federal Deposit Insurance Corporation. Examination Policies Manual – Basic Examination Concepts and Guidelines An ILC that fails to meet FDIC standards can face enforcement actions up to termination of its deposit insurance.
Under 12 U.S.C. § 1820, the FDIC can also examine any affiliate of an insured institution, including the parent, to determine whether the relationship poses risks to the bank.8Office of the Law Revision Counsel. 12 USC 1820 – Administration of Corporation An affiliate that refuses to cooperate can trigger a civil penalty of up to $5,000 per day of noncompliance, assessed against the ILC itself.
The Gap in Oversight
The gap is at the parent level, not at the bank. A traditional bank holding company submits to the Federal Reserve’s consolidated supervision, which monitors the whole corporate family continuously. An ILC’s commercial parent faces no equivalent. The FDIC can examine the parent when the parent’s activities threaten the ILC, but that reactive authority is narrower than the Fed’s ongoing view of a bank holding company. Critics have called this the regulatory gap for decades, and it remains the central point of contention in the ILC debate.
The 2020 Parent Company Rule
To narrow that gap, the FDIC finalized a rule in December 2020 (effective April 2021) imposing specific obligations on companies that control industrial banks without being subject to Federal Reserve consolidated supervision. These “covered companies” must enter into enforceable written agreements with the FDIC.9Federal Register. Parent Companies of Industrial Banks and Industrial Loan Companies The agreements require the parent to:
- Maintain the ILC’s capital and liquidity at levels the FDIC deems appropriate, and stand ready to provide additional support through mechanisms such as asset pledges or third-party letters of credit.10eCFR. 12 CFR 354.4 – Required Commitments and Provisions of Written Agreement
- Consent, along with all subsidiaries, to FDIC examination for compliance with the agreement.
- Submit annual reports on its own financial condition and that of its subsidiaries.
- Obtain an independent annual audit of each subsidiary ILC.
- Keep direct and indirect representation on the ILC’s board below 50 percent.
- Provide, on request, a recovery and orderly disposition plan for severe stress at the ILC.
The parent also has a statutory obligation to serve as a “source of financial strength” for its ILC subsidiary under Section 38A of the Federal Deposit Insurance Act, and the FDIC can enforce the written agreements under Sections 8 and 50 of that act.
Limits on Dealings With the Parent
One of the most practical constraints on an industrial loan company is the restriction on financial dealings between the bank and its owner. Sections 23A and 23B of the Federal Reserve Act apply to all insured depository institutions, ILCs included, and they cap what the bank can lend or otherwise extend to affiliates.
Under Section 23A, an ILC’s total “covered transactions” with any single affiliate cannot exceed 10 percent of the ILC’s capital and surplus, and covered transactions with all affiliates combined cannot exceed 20 percent.11Federal Reserve Board. Section 23A – Relations With Affiliates Covered transactions include loans to affiliates, purchases of affiliate-issued securities, asset purchases from affiliates, and guarantees on behalf of affiliates.12Federal Reserve Board. Coverage of Sections 23A and 23B of the Federal Reserve Act The ILC is also barred from buying low-quality assets from an affiliate or accepting affiliate-issued securities as collateral.
These limits exist to keep the parent from treating the bank as a captive funding source for the rest of its business. Any transaction that routes ILC proceeds to an affiliate, even through a third party, counts against the caps. For parent companies used to moving money freely within a corporate group, compliance with these limits requires real infrastructure.
Why the Charter Is Controversial
The ILC charter sits at the center of a long-running argument in American banking about whether commercial companies should own banks. Much of U.S. banking law has aimed at keeping the business of lending separate from the businesses that borrow. When they mix, the concern is that a parent company will treat its bank subsidiary as a captive funding source, prioritizing commercial needs over safety and depositors’ interests.
The Federal Reserve has consistently argued that ILC parents escape the supervision applied to traditional bank holding companies and that this gap poses systemic risk if commercially owned ILCs grow large enough to matter. Community banks have raised competitive concerns about facing off against ILCs backed by major corporations.
Supporters point out that ILCs face the same examinations, capital requirements, and compliance obligations as any other insured bank, and that the ILC charter is simply another part of the dual banking system that has always allowed both federal and state chartering. The FDIC and state supervisors have said their oversight is sufficient, and the 2020 parent-company rule was designed in part to address the criticism about the supervisory gap. Whether that rule goes far enough remains debated.
The framework has also shifted repeatedly. The FDIC imposed a moratorium on new ILC deposit insurance applications in 2006 and extended it in 2007. Section 603 of the Dodd-Frank Act then imposed a second, mandatory moratorium from July 2010 through July 2013. Even after that expired, the FDIC did not approve any new ILC applications for more than six years, resuming with a first new approval in March 2020 and, since then, high-profile approvals including Ford, General Motors, and Edward Jones. In 2025 the FDIC issued a Request for Information seeking public comment on how it evaluates ILC-related filings, indicating that the rules governing the charter are still moving.13Federal Deposit Insurance Corporation. Request for Information on Industrial Banks and Industrial Loan Companies and Their Parent Companies