General Motors' GM Financial resubmits ILC application

General Motors Financial, a Utah-chartered industrial loan company owned by the Detroit automaker, has resubmitted its application for deposit insurance with the Federal Deposit Insurance Corp. after withdrawing an earlier application last year.

The Jan. 31 application with the FDIC is currently pending, though the application itself was not immediately available for review. GM Financial did not immediately respond to a request for comment, but said in a Jan. 31 press statement that the application, if approved, would "directly support our business model by providing stable, cost-effective funding.

"In turn, the tangible stakeholder benefits are clear: expanded financing options to retail auto consumers, responsible extension of credit across a geographically and economically diverse consumer base, excellent customer service and strong support to dealers and consumers in all economic cycles," said Dan Berce, President and CEO of GM Financial, in the statement. "We are confident that the refiled application will result in a bank that benefits American auto manufacturing and auto workers, customers, and dealers."

GM Financial has sought an ILC charter for some time, initially seeking charter approval from the FDIC and the Utah Department of Financial Institutions in 2020. That application was withdrawn last June, with many observers expecting that its chances of gaining approval would be improved in a second Trump administration. 

The FDIC under the Biden administration proposed a rule last July that would have set more stringent requirements on ILC applications, including new commitments and assurances for ILCs that would not fall under Federal Reserve supervision, structural requirements to ensure an ILC's ability to operate independently of its parent holding company and an evaluation by the FDIC of whether the approved ILC would meet its community's lending needs. Comments on that pending rule were closed on October 11, 2024 but the rule was not finalized.

ILCs are state-chartered, FDIC-insured banks owned by nonfinancial companies. Like traditional banks, ILCs offer various loan types and deposit accounts. But unlike traditional bank holding companies, the parents of ILCs are exempt from restrictions between banking and commerce enshrined in the Bank Holding Company Act, provided they abstain from offering demand deposit accounts. However, many ILCs get around this prohibition by offering quasi-demand deposit accounts known as negotiable order of withdrawal accounts. Industrial banks reserve the right to require a seven-day advance notice or more to make the funds in such accounts available to consumers.

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Fourteen companies have applied for ILC charters since 2017, but approvals of those applications were unusual until 2020. In the first year of the pandemic, after 14 years without approvals, Block — formerly Square Financial Services — and the education financing company Nelnet Bank were granted charters by the FDIC under the leadership of former Chair Jelena McWilliams. Ford Motor Company also applied for an ILC charter in 2022.

Banks have long been skeptical of ILC charters, arguing that they allow nonbanking commercial enterprises to take deposits that would otherwise be housed in traditional banks and make loans with an eye toward growing their business rather than based on creditworthiness of the borrower. Some lawmakers have also expressed similar views, with former Senate Banking Committee Chair Sherrod Brown, D-Ohio, proposing a bill in 2023 that would have subjected ILCs to Federal Reserve supervision like any other holding company. Other lawmakers — largely those representing states where many ILCs are chartered, including now-retired Sen. Mitt Romney, R-Utah — have urged regulators to move quickly on ILC applications.

GM itself has a rocky relationship with banking. Leading up to the 2008 financial crisis, General Motors Acceptance Corp. — the automaker's ILC lending arm since 1919 — had expanded into home mortgages, leading to a $9.2 billion loss to the bank between 2007 and 2009. GMAC was spun off from GM in 2006, and was rechartered in 2008 as a traditional state-chartered bank under the name Ally Financial.