I came across this article in the Economist this evening which raised this question: "Will the Obama administration's reforms of the financial system hurt retailers and manufacturers with lending arms?" The article goes on to describe how the financial reforms may impact industrial loan companies. As described by the Economist, ILCs are "state-regulated outfits, based mainly in Utah, which can take in
federally insured deposits from savers, make loans and issue credit
cards, but are subject to less onerous regulation than banks." The recently unveiled financial system reforms include plans to "put an end to a category of financial firm
they have all set up called an “industrial loan company” (ILC)."
This is not a new story as the Wall Street Journal reported last week on the Obama Administration's plans:
"President Barack Obama wants companies with ILC charters to register as
bank-holding companies with the Federal Reserve. That would put them in
the same regulatory category as Bank of America Corp. and J.P. Morgan
Chase & Co., subjecting the non-banks to much greater government
oversight."
The Journal goes on to report that if this regulation were to occur, most of the ILCs would be shut down:
"If that happens, most companies with ILC charters likely would close
them down, potentially shutting off another source of credit for
consumers, industry experts predict. That's because the companies might
not be able to satisfy the Fed's capital and other requirements, and
thus would be ineligible to become bank-holding companies, or they
would balk at heavier regulation."
Of course, this won't happen without a fight on Capitol Hill:
"Some lawmakers and banking groups are vowing to fight the ILC
provision, which they see as an overzealous attempt to create a level
regulatory playing field at the expense of companies that didn't play
major roles in the financial crisis."
Why is this important to Sallie Mae? The Sallie Mae Bank, an ILC, plays a critical role in private loan originations as these recent company pronouncements make clear:
