What Is ILC Banking?
An industrial loan company (ILC) is a financial institution within the United States that lends money, typically to consumers and small businesses. A fixed institution since 1910, the distinctive feature about ILC’s is that they may be owned by non-financial institutions, such as a commercially-run company, and provide specialized lending that traditional banks typically don’t. They are, however, still federally insured and subject to both Federal Deposit Insurance Corporation (FDIC) regulations and state-chartered supervision.
Though they can be owned by commercial firms, ILC’s are exempt from technically being defined as a “bank” as the term pertains to the Bank Holding Company Act (BHCA), but are generally held to the same laws, mandates, and regulations as other types of banks. In addition, ILC’s are subject to Sections 23A and 23B of the Federal Reserve Act, which regulate transactions made between industrial banks, their affiliates, and parent companies. For example, ILC’s are strictly prohibited from issuing credit to their consumers to be used to purchase products or services offered by an ILC’s parent company.
Unlike commercial banks and lenders, ILC’s do not offer checking accounts and do not accept demand deposits (they can, however, accept federally insured deposits). Their primary services include offering loans, issuing credit cards, and providing credit financing as well as financial planning. The goal of industrial lending institutions is to provide banking and credit services to a diverse range of customer factions across the country, particularly underserved groups (more on that later).
Currently, there are seven states that offer ILC’s: Utah, Nevada, Hawaii, California, Colorado, Minnesota, and Indiana. Interestingly, most ILC’s have been chartered by the Utah Department of Financial Institutions, so consider the Utah as the capital of industrial banking. Many corporations have established industrial banks.
What Are the Benefits of Industrial Banks?
Though they’re not the conventional bank, the good news is that ILC’s still possess many of the same properties and functions of one. They still have the ability to join major card associations, such as Visa and Mastercard, and issue cards to consumers. The cost of funding for these banks is also reduced, thanks to a discount window provided by the Federal Reserve, and marketing costs are low as the selection of loan applicants is broad (applications come from across the country). Industrial loan corporations are only subject to supervision by select institutions depending on the state they are chartered in. ILC’s are also exempt from both state licensing and money service business (MSB) laws.
Beyond convenience and cost efficiency, the ILC structure is particularly sound. Though sparse when compared to the number of banks as defined under the BHCA, ILC’s have withstood the test of time, surviving through the better part of a century; not to mention multiple economic crises and financial collapses. According to a banking law specialist and university professor Mehrsa Baradaran, “[t]he ILC structure is currently the only place where the stabilizing relationship between commerce and banking takes place and, as demonstrated, the small industry has remained sound through a systematic financial collapse largely due to its commercial relationships.”
ILC’s can also provide a more streamlined and informed approach to lending. For example, industrial lending corporations owned by General Motors and BMW will have significantly more knowledge and expertise when it comes to processing and issuing car loans than will General Electric.
For Whom Are ILC’s A Good Option?
As an ILC’s primarily function is as a lending institution, it would follow that their main clientele are specialized consumer and retail customer groups found across the country seeking loans or lines of credit. Since the original goal of ILC’s was to provide lending to industrial workers who could not secure funds elsewhere, industrial banks cater their business toward what is known as “underserved” markets. ILC’s cater to consumers and businesses that might find it hard to secure loans or funding from traditional banks, credit unions, and financial institutions. These individuals often find it difficult to even gain access to common banking services.
Underserved groups typically include consumers recovering from financial problems, those with low income, clients with poor credit (or no established credit to speak of), companies that do not qualify to be bank-holding, hourly workers, and consumers with low, moderate, or inconsistent income.
What BMA Can Do for ILC’s
Advancements in technology are constantly changing the landscape of banking. As is the case for typical banking, industrial lending companies need core processing technology that can keep up with their sophisticated structure. BMA Core Technology provides innovative software that is designed to perform powerful and dynamic core processing, while maintaining maximum efficiency and ease for its clients.
BMA processing services software includes:
Customized system enhancements in all areas
Loan solutions (Including participation, construction and CRA management)
General ledger management
Fraud and risk management
Teller systems (Integrated Branch and Teller Capture)
ACH and wire transfer solutions
And much more …
Overall, BMA Core Technologies makes banking simpler and more efficient for both banks and customers alike. With the customized needs that your ILC may have, BMA can provide this type of specialized program development. We can take your financial institution from efficient to a well-oiled machine in no time at all.
The easy-to-use touch-screen system is compatible with all major web browsers, and can take as little as two hours to learn. It presents a streamlined, affordable processing solution through a flat-rate pricing model, so your lending company won’t have to worry about unprecedented fees.
All functions operate through a secure, cloud-based data center with little to no interference, and can be fully integrated across all processing platforms.
If you would like to learn more about BMA Core Processing solutions, visit our website. Or, you can call 801-887-0122 to speak with a BMA discovery banking specialist.