An industrial loan company (ILC) is a financial institution that lends money, and may be owned by non-financial institutions. Though the bank itself comes under state and Federal Deposit Insurance Corp (FDIC) regulation, a debate exists whether to allow companies, such as Wal-Mart, to own such a bank, because the parent company would remain unregulated. ILCs are currently chartered by seven states, including Nevada.
FDIC directors recently imposed a six-month moratorium on approving applications for ILCs. The moratorium is intended to give federal bank regulators time to review and determine if the growing number of ILC institutions pose any emerging safety or financial policy risks. According to Nevada banking experts, the charter application of the world’s largest retailer, Wal-Mart Stores, to establish an ILC in Utah is probably what incited the moratorium.
"Approving the growing number of ILC charters is certainly an issue. And, like any issue, there are pro and con sides to it," said Bill Uffelman, president of the Nevada Bankers Association. "For the most part, ILCs seem to be working. But, it’s important to consider all implications a thrift bank can have on a community. In the case of Wal-Mart, regulators need to consider how it may impact community banks."
Uffelman heads the Nevada trade association, which includes most of the state’s financial institutions, including ILCs. He said the two kinds of institutions have been able to coexist peacefully since ILCs entered the state nearly 10 years ago. Nevada ILCs, such as Eaglemark Savings Bank and Toyota Financial Savings Bank, aim to convince the public that they can continue this coexistence. Over the last several years, they have been actively testifying in support of ILC charter approvals during Nevada’s legislative sessions.
"Thrifts/ILCs offer a versatile charter for companies to set up financial institutions, which – regardless of their ownership – exist to serve an identified consumer need," said Donal Hummer, vice president of community and government affairs for Eaglemark Savings Bank. Eaglemark, headquartered in Carson City, is the city’s largest private employer. "In almost all instances, servicing those needs is not in conflict with community banks, and in fact is complementary," he added.
The seven-year-old ILC, which operates as a subsidiary company to Harley-Davidson Financial Services (HDFS), provides its customers with secured motorcycle loans. Last year, the Economic Development Authority of Western Nevada estimated the ILC had a $65 million net positive impact on the state’s economy. According to Hummer, HDFS made 99.95 percent of its revenue from loans outside Nevada.
"ILCs are state-chartered, insured banks that are just as regulated as other banks," said Ray Specht, president of Toyota Financial Savings Bank. Specht has been in the banking industry for over 30 years – 14 years on the ILC side. "Our bank isn’t going head-to-head with community banks. What we’re doing is offering bank products that will increase our buyers’ interest in purchasing more of our products and services," he said.
The company, owned by Toyota Financial Services Americas Corporation, opened its doors in 2004 after being approved by the FDIC and state of Nevada. Since its inception, the company has generated well over 10,000 rewards-based credit card accounts for Lexus customers, which are used to promote future product purchases by loyal card users.
According to Specht, the ILC industry is currently one of the strongest areas in banking and will continue to grow. "Coming from both schools of banking, I have a balanced perspective on ILC chartering issues," Specht said. "Considering the fact that ILCs are just as regulated by the FDIC and the state as other Nevada chartered banks, all I can see is potential to create a more competitive marketplace, which benefits consumers, and potential for the state of Nevada to grow this industry and provide more jobs, income and diversity in business throughout the state."
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