Industrial loan company

An industrial loan company (ILC) or industrial bank is a financial institution in the United States that lends money, and may be owned by non-financial institutions. Though such banks offer FDIC-insured deposits and are subject to FDIC and state regulator oversight, a debate exists to allow parent companies such as Wal-Mart to remain unregulated by the financial regulators. "FDIC-insured entities are subject to Sections 23A and 23B of the Federal Reserve Act, which limits bank transactions with affiliates, including the parent company." ( The ILC is permitted to have branches in multiple states (which is permitted by many states on a reciprocal basis). They are state-chartered, and insured by the Federal Deposit Insurance Corporation. They are currently chartered by seven states, with most chartered by Utah. Other states permitting them include California, Colorado, Minnesota, Indiana, Hawaii, and Nevada.

Companies that have set up industrial banks include UBS, General Electric, General Motors, Merrill Lynch, Morgan Stanley, American Express, Target Corp, Nordstrom, Harley-Davidson, First Data, UnitedHealth Group, BMW, and Sallie Mae. In May 2005, Warren Buffett's Berkshire Hathaway, Inc. announced plans to operate a Utah industrial bank to handle consumer loans for its R. C. Willey Home Furnishings stores. The Blue Cross and Blue Shield Association, Ford Motor Co., Ceridian Corp. and Home Depot await approval.

Top Ten FDIC-Insured Industrial Banks by Assets, 2005 ($ millions).

Rank Bank State assets
1 Merrill Lynch Bank USA UT $60,367.7
2 UBS Bank USA UT $18,585.8
3 American Express Centurion Bank UT $15,933.0
4 Fremont Investment & Loan CA $11,316.4
5 Morgan Stanley Bank UT $8,674.9
6 USAA Savings Bank NV $7,099.6
7 GMAC Commercial Mortgage Bank UT $4,872.5
8 GMAC Automotive Bank UT $2,429.5
9 Beal Savings Bank NV $2,420.2
10 Lehman Brothers Commercial Bank UT $2,127.2

Source: Federal Deposit Insurance Corporation. As of 2009, some of these banks are no longer extant.

However, the assets held by an ILC tend to paint an incomplete picture. The actual loan book amount can be considered more important. In this view, for example, UBS would replace Merrill Lynch as number 1.

Origins of the concept

In 1910, attorney Arthur J. Morris (1881-1973) opened the Fidelity Savings and Trust Company in Norfolk, Virginia, which made small loans to working people under a concept he called the "Morris Plan." Under this lending approach, would-be borrowers had to submit references from two people of like character and earning-power to prove the borrower's creditworthiness, and agreed to repay the loan through the purchase of Installment Thrift Certificates in weekly installments equal to the face value of the loan, less origination and investigative fees. Morris Plan Banks expanded to more than 100 locations in the United States.

Morris Plan banks pioneered the use of automotive financing (through arrangements between the Morris Plan Company of America, essentially a holding company for Morris Plan banks, and the Studebaker Corporation), and, through the subsidiary Morris Plan Insurance Society, credit life insurance (which provided for the loan to be repaid in case the borrower died during the term of the loan, with any residue going to the borrower's estate).

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