WASHINGTON — Ford Motor Co. is
The Ford application to the Federal Deposit Insurance Corp. would create Ford Credit Bank as a unit of Ford Motor Credit Co. to offer auto loans. Ford is the first major nonfintech to seek an ILC under the Biden administration.
Although auto company ILCs aren't unheard of — Toyota and BMW already have industrial banks — the application for the banking industry raises the specter of a larger company, such as Walmart or Amazon, entering the banking fray.
"This shows why the ILC loophole should be closed, because we're concerned that these commercial firms will really start using it," said Chris Cole, executive vice president and senior regulatory counsel for the Independent Community Bankers of America. "We may see Amazon use it, we may see Google using it."
Still, it's an important moment for the FDIC and its board. The likelihood of an approval
"This would be the most likely thing to get an approval, but I just don't see any likelihood of action on this front in the near future," said Todd H. Baker, senior fellow at the Richman Center for Business, Law and Public Policy at Columbia University. "It just doesn't seem to be the priority of the FDIC."
What's in the Ford application
Ford's 440-page ILC application relies heavily on a pitch that a potential Ford Credit Bank would help fund electric vehicles, playing into the Biden administration's climate change priorities.
"The Bank's purpose is to create innovative and simplified banking solutions that enable electric vehicles to be accessible to all Americans. The Bank will pursue this by offering auto lending through indirect retail installment and lease contracts originated by auto dealers to finance EVs," Ford says in its application.
The application also stresses that a Ford ILC could make transportation more accessible and more affordable to underserved communities, another Biden administration goal.
"Bank management understands that access to transportation is one of the largest obstacles to social and economic mobility," according to the application. The auto company says its position as a "mobility leader will allow us to collaborate with nonprofit partners and leverage Ford's expertise to enable greater impact in historically marginalized communities with limited or no access to affordable or reliable transportation."
Other products that Ford would want to offer includes deposit accounts, loans to auto dealers and loans to finance automotive parts and accessories, such as EV charging stations.
A Ford bank's deposit products would include "competitive, consumer-centered savings accounts, including accounts to support the purchase of EVs and other 'green' initiatives," according to the automaker's application. These kinds of accounts are likely where Ford would make the most money, potentially offering less costly financing than third-party options for customers, and taking a larger slice of the profit.
"They could benefit from using low-cost deposits to back the loans that they make," said Paul Davis, director of market intelligence at Strategic Resource Management and founder of the Bank Slate blog. "That's probably a big reason why the banking industry would object to that ILC."
Still, Ford's argument around EVs and increased transportation access is likely to get further with Democratic policymakers, a tricky proposition in the current regulatory climate.
"They're making the argument that the main reason they want this ILC is to promote things that are environmentally friendly and to help underserved markets," Davis said. "For one of the biggest automakers, it's a better move than stating they want to simply make more auto loans and back them up with low-cost deposits."
Slim chances, but big rewards
It's unlikely that the Ford application will easily get approval from the current FDIC, analysts said.
The FDIC's board, which must approve any new industrial bank application, currently includes acting FDIC Chairman Martin Gruenberg, acting Comptroller of the Currency Michael Hsu and Consumer Financial Protection Bureau Director Rohit Chopra, none of whom have signaled openness to this kind of application.
Gruenberg previously opposed Square's ILC application,
But with a potential reshuffling in Washington and a
"I imagine they see with the election coming up, that they don't foresee any banking legislation going through, and they probably think that what you see right now is what you get, and we probably ought to do this," Cole said. "Particularly if Republicans flip the House, they could find a friendlier audience."
Market pressures could also be convincing Ford to go ahead with the application, said Peter Dugas, executive director at Capco. As with Ford's previous attempt at an ILC in 2008, financial companies right now are looking for "innovative ways to provide financing, which otherwise may not be affordable."
"I think everyone's looking for a lower cost financing in a higher interest rate environment, and this is an easy way for Ford to address that," Dugas said. "There is still a chip shortage, there's still supply chain issues, there's also just the overall increase in interest rates, which are causing financing issues for the lower-cost models where traditionally they make higher margins, and also just the competitiveness of the marketplace."
