GE is also concerned, along with a host of other companies, about the administration’s proposal to put an end to a category of financial firm they have all set up called an “industrial loan company.” These are state-regulated outfits, based mainly in Utah, which can take in federally insured deposits from savers, make loans and issue credit cards, but are subject to less onerous regulation than banks. They have proliferated in recent years as non-financial firms such as Target, BMW, Pitney Bowes, and UnitedHealth have created ILCs as a cheap and profitable way to steer credit and other financial services to their customers.
The administration wants to subject all consumer-finance firms to the same regulations to prevent a gradual migration to the most lax form of oversight. That fear is not unreasonable, and the response sensible enough. But it is likely to be undermined by the boundless ingenuity of businesses looking for a way around supposedly comprehensive regulations. Moreover, there is no evidence that the ILCs of non-financial companies played any part in the financial crisis, or that they pose any systemic risk.
Harley-Davidson lending money to fifty-somethings in the midst of mid-life crises so that they can buy its “hogs” is unlikely to bring capitalism to its knees. Indeed, since the 19th century, when firms such as Singer started extending “dollar down, dollar a week” loans to help people buy sewing machines, such financing has been a routine feature of business life. It is unlikely to go away even if regulation makes it more expensive. Instead, those firms that depend on providing such loans will presumably accept the stricter oversight that comes with owning a bank.
The crackdown on ILCs, more than anything, is testimony to the phenomenal lobbying power of America’s banks, which have long railed against the growth of cheaper, more lightly regulated competitors. Back before the financial crisis, the banks protested so furiously against an attempt by Wal-Mart to obtain a license to start its own ILC that the giant retailer backed down. But whatever the regulatory category, the sort of competition that a firm as large and well-run as Wal-Mart would bring to consumer banking might be just what bloated incumbents such as Citigroup desperately need.