House Subcommittee reaffirms the Strengths and Regulatory Oversight of Industrial Banks

This week the US House Financial Services Committee Subcommittee on Consumer Protection and Financial Institutions conducted a hearing “The Future of Banking: How Consolidation, Nonbank Competition, and Technology are Reshaping the Banking System”. Several witnesses provided verbal and written testimony regarding their views on serving consumers, community banks, new advances in technology for financial services, and consumer protection.

Sarah Jane Hughes, University Scholar and Fellow in Commercial Law, Indiana University School of Law, provided testimony to the Subcommittee. Dr. Hughes stated that Industrial Loan Corporations (ILCs) are subject to “thorough” regulatory supervision and examination by the FDIC and state regulators. 

“Dr. Hughes, a recognized academic, reaffirmed the fact that industrial banks are subject to robust regulation. Further, during this committee hearing, there was no dispute that industrial banks are among the safest and soundest financial institutions in the country,” stated Frank Pignanelli, Executive Director, National Association of Industrial Bankers. (“Industrial Banks” is the most accurate label for these institutions.)

The Subcommittee explored a number of issues regarding modern banking, including data privacy, opportunities for low income and minority populations, competition between banks and fintechs, etc. There was significant discussion regarding how Congress can help smaller banks.

In response to a question, one panelist made a significant misrepresentation stating that ILCs are not subject to Community Reinvestment Act (CRA) or Truth in Lending (TILA) requirements. This is a significant distortion to be made in testimony to a Congressional committee. ILCs are state chartered FDIC-insured depository institutions that comply with the same state and federal laws and regulations such as CRA, TILA, information protection, privacy, information security, physical security, business resilience, and cybersecurity requirements that apply equally to all FDIC- insured banks.  Like all FDIC-insured depository institutions, ILCs comply with insider lending regulations, identity theft, fraud, the Bank Secrecy Act and anti-money laundering compliance requirements that protect our customers.

Howard Headlee, President of the Utah Bankers Association stated, “The one area where we heard bi-partisan agreement is the need to eliminate regulatory arbitrage. I am confident that committee members will soon realize that the ILC charter is the absolute best way to facilitate new entrants and innovations that are subject to all existing banking regulations and consumer protections. Industrial Banks are the obvious solution, they are not the problem.  Comments from one of the panelists that Industrial Banks are not subject to CRA or TILA were outrageously false and should be corrected immediately.”

Phyllis Gurgevich, President of the Nevada Bankers Association offered,” We are proud of the industrial banks chartered in Nevada. They provide critical financial services to millions of Americans. Equally important, they are wonderful community partners who provide opportunities to Nevadans through CRA investment and other engagements with our residents.”

Dr. Sarah Hughes repeatedly expressed support for small community banks, especially providing credit to rural and other underserved areas. “For an unabashed respected advocate of community banks to also express support for industrial banks is an important addition to Congressional deliberations. Dr. Hughes has reaffirmed that state chartered industrial banks and state chartered community banks are equally well regulated and provide important services to consumers,” observed Ray Specht, Chairman,  National Association of Industrial Bankers.

The National Association of Industrial Bankers provided a letter which was admitted into the Subcommittee record. This letter is available at The premier source of information regarding industrial banks utilized by academic, government and research centers is “A New Look at the Contribution and Performance of Industrial Loan Companies to the US Banking System” by James R. Barth and Yanfei Sun, Department of Finance, Auburn University, January 2018. 

“Members of the committee and the witnesses expressed concerns about competition, consumer protection, burdens on small banks, providing financial services to the underbanked, and responding to technology. These are all important questions, and the industrial bank model is clearly an important part of the answer to all of them,” added Pignanelli.