An industrial loan company is a state-chartered, FDIC-insured bank whose parent company is exempt from the Bank Holding Company Act, which means a commercial firm can own a full-service bank without becoming a bank holding company or submitting to Federal Reserve consolidated supervision. That single exemption is what separates an industrial loan company (often called an ILC or industrial bank) from every other federally insured depository institution in the United States. It is why automakers, retailers, brokerages, and technology firms can own banks. It is also why the charter has been contested for decades.
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 reaches any insured bank and any institution that both accepts checkable deposits and makes commercial loans. Anyone who owns a “bank” under that definition has to register as a bank holding company, accept the Federal Reserve’s consolidated supervision, and stay inside the activities the Fed considers “closely related to banking.”1GovInfo. United States Code Title 12 Chapter 17
The Competitive Equality Banking Act of 1987 cut a hole in that definition. Congress excluded industrial loan companies from the BHCA’s meaning of “bank,” so long as the ILC is 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 the ILC is not a “bank” for BHCA purposes, its owner is not a bank holding company. The parent can manufacture cars, run retail stores, or operate a brokerage, and still own an insured depository institution.
That is the whole appeal. A traditional bank holding company cannot mix banking with unrelated commercial businesses. An ILC parent can.
Where ILCs Are Chartered
Only a small group of states has the statutory framework to charter an ILC that qualifies for the exemption: Utah, Nevada, California, Minnesota, Indiana, and Hawaii. Utah charters the majority of commercially owned ILCs and has the most developed regulatory infrastructure for them, with Nevada also active on a smaller scale.3Utah Department of Financial Institutions. Industrial Banks Capital minimums, examination schedules, and supervisory expectations vary by state.
What an ILC Does and Who Owns One
Inside its own four walls, an ILC operates like a commercial bank. It takes deposits insured by the FDIC up to $250,000 per depositor, makes consumer and commercial loans, issues credit cards, finances real estate, and processes payments. With a Federal Reserve master account, it can clear and settle transactions through the national payment system, though the Fed reviews each access request on risk grounds.4Federal Reserve Board. Master Account and Services Database FAQs
Parent companies use the charter in a few recognizable ways:
- Automakers and equipment manufacturers run captive finance arms funded by insured deposits instead of wholesale markets. Ford and General Motors have received ILC approvals in recent years.
- Credit card issuers and specialty consumer lenders use the ILC’s deposit base as stable, low-cost funding.
- Fintech firms use the charter to offer checking, digital lending, and payments directly rather than through a bank partner.
- Large retailers issue branded cards and finance purchases; brokerages such as Edward Jones add banking alongside investment accounts.
In each case, the ILC functions as an in-house bank whose insured deposits fund the parent’s financial products more cheaply than borrowing in the capital markets.
How ILCs Are Regulated
The exemption is about the parent, not the bank. The ILC itself is regulated heavily, under a dual state-federal structure.
The Chartering State
The state banking regulator grants the charter, conducts examinations, and enforces state banking law. Utah’s Department of Financial Institutions, for example, subjects industrial banks to the same supervisory processes it applies to any other Utah-chartered bank.3Utah Department of Financial Institutions. Industrial Banks
The FDIC
The FDIC provides federal oversight. It insures deposits and runs its own safety-and-soundness examinations, usually coordinated with the state. Examiners rate the institution on capital adequacy, asset quality, management, earnings, liquidity, and sensitivity to market risk, producing a CAMELS score.5Federal Deposit Insurance Corporation. Examination Policies Manual – Basic Examination Concepts and Guidelines An ILC that falls short can face enforcement action up to termination of deposit insurance.
Under 12 U.S.C. § 1820, the FDIC can also examine any affiliate of an insured institution, including an ILC’s parent, when the affiliate relationship raises risk questions.6Office of the Law Revision Counsel. 12 USC 1820 – Administration of Corporation Refusal to cooperate can trigger a civil penalty of up to $5,000 per day assessed against the insured institution.
The Gap
What the ILC framework lacks is continuous, comprehensive supervision of the parent. A bank holding company is monitored on a consolidated basis by the Federal Reserve; an ILC’s commercial parent is not. The FDIC’s affiliate examination authority is real but narrower, and critics have called this the “regulatory gap” for decades. It remains the central issue in the policy debate over the charter, and it is the reason the exemption is politically contested even though the ILC itself is fully regulated.
The 2020 FDIC Rule on Parent Companies
To narrow that gap, the FDIC finalized a rule in December 2020, effective April 2021, imposing requirements on companies that control industrial banks without being subject to Fed consolidated supervision. These “covered companies” must sign enforceable written agreements with the FDIC that include:7Federal Register. Parent Companies of Industrial Banks and Industrial Loan Companies
- Keeping the ILC’s capital and liquidity at levels the FDIC deems appropriate and being prepared to provide additional support through mechanisms such as asset pledges or third-party letters of credit.8eCFR. 12 CFR 354.4 – Required Commitments and Provisions of Written Agreement
- Consenting to FDIC examination of the parent and its subsidiaries to check compliance with the agreement.
- Filing annual reports on the parent’s and subsidiaries’ financial condition, plus anything else the FDIC requests.
- Obtaining an independent annual audit of each subsidiary ILC.
- Keeping the parent’s direct and indirect representation on the ILC’s board below 50 percent.
- Producing a recovery and orderly disposition plan when the FDIC requires one.
Section 38A of the Federal Deposit Insurance Act separately requires the parent to serve as a source of financial strength for its ILC subsidiary. The FDIC enforces the written agreements under Sections 8 and 50 of the FDI Act, so these are not aspirational commitments.
Limits on Dealings Between the ILC and Its Parent
The practical constraint that shapes day-to-day ILC operations is the limit on transactions with affiliates. Sections 23A and 23B of the Federal Reserve Act apply to every insured depository institution, ILCs included, and cap the amount the bank can lend or otherwise extend to companies in its own corporate family.
Under Section 23A, “covered transactions” with any one affiliate cannot exceed 10 percent of the ILC’s capital and surplus. The aggregate across all affiliates cannot exceed 20 percent.9Federal Reserve Board. Section 23A – Relations With Affiliates Covered transactions include loans to affiliates, purchases of affiliate securities, asset purchases from affiliates, and guarantees issued on their behalf.10Federal 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 rules exist specifically to prevent the concern at the heart of the banking-commerce debate: that a parent will treat its bank as a captive funding source. Any structure that funnels ILC money to an affiliate, even through a third party, counts against the caps.
Moratoriums and the Current Approval Climate
The ILC pipeline has been closed as often as it has been open. In July 2006, the FDIC imposed a moratorium on ILC deposit insurance applications, citing the widening range of companies seeking charters. The agency extended it in 2007 and proposed source-of-strength rules that never got finalized. The moratorium lapsed in January 2008.
Congress then imposed its own freeze. Section 603 of the Dodd-Frank Act barred new ILC deposit insurance approvals from July 2010 through July 2013. Even after that expired, no new ILC was approved for more than six years. The first post-moratorium approval came in March 2020, and the FDIC finalized the parent-company rule later that year.
Since reopening, the FDIC has approved ILC applications from Ford, General Motors, and Edward Jones, among others. In 2025 the agency issued a Request for Information on how it evaluates ILC-related filings, signaling that the framework is still evolving.11Federal Deposit Insurance Corporation. Request for Information on Industrial Banks and Industrial Loan Companies and Their Parent Companies Applicants have sometimes waited more than three years for a decision, a fact the FDIC itself has acknowledged.12Federal Deposit Insurance Corporation. Notice of Proposed Rulemaking on Industrial Loan Companies
Why the Charter Is Controversial
The ILC sits inside one of the oldest arguments in American banking: whether commercial companies should own banks at all. U.S. law has generally tried to keep the business of making loans separate from the businesses that borrow. When the two combine, regulators worry that a parent will use its bank subsidiary to fund the rest of the corporate group, at depositor and taxpayer expense.
The Federal Reserve has consistently argued that ILC parents escape the level of supervision applied to bank holding companies, and that the gap creates systemic risk if commercially owned ILCs grow large enough to matter. Community banks have raised competitive objections, wary of facing rivals backed by major corporate balance sheets. The GAO has noted that ILCs and similar BHCA-exempt institutions hold only a small share of banking assets but raise distinctive policy questions because their holding companies fall outside the standard framework.13U.S. Government Accountability Office. Bank Holding Company Act Characteristics and Regulation of Exempt Institutions and the Implications of Removing the Exemptions
Supporters counter that the ILC itself faces the same examinations, capital rules, and compliance obligations as any insured bank, that the FDIC and state supervisors have proven adequate, and that the charter is simply another expression of the dual banking system. The 2020 parent-company rule was designed to answer the gap critique, though whether it goes far enough is still debated. For any company weighing the charter, that unsettled policy environment is itself part of the calculation: the framework has shifted repeatedly over two decades, and the FDIC’s active review suggests it will shift again.