Banking and Finance Law Daily Wrap Up, BANKING OPERATIONS—Senators reintroduce bipartisan bill to close ‘shadow banking’ loophole, (Jan 30, 2026)

By Jonathan Anderson

The legislation targeting industrial loan companies has a broad coalition of supporters, but similar efforts have stalled in Congress.

Two members of the Senate Banking Committee reintroduced a bill they say would close the so-called “shadow banking” loophole in federal law. The Close the Shadow Banking Loophole Act would require companies that offer banking services through industrial loan companies (ILCs) to follow the same regulations that apply to traditional banking entities. The legislation, introduced by Sens. John Kennedy (R-La.) and Andy Kim (D-N.J.), has garnered support from a broad coalition of groups representing financial institutions, consumer protection organizations, and public interest advocates.

The bill. Present law allows some non-financial companies to own ILCs, which provide banking services and are insured by the Federal Deposit Insurance Corporation (FDIC), even though they are not subject to the same Federal Reserve consolidated oversight that applies to traditional bank holding companies. The Close the Shadow Banking Loophole Act would require that a company that owns or controls an ILC must be subject to the same standard Federal Reserve supervision as any other bank holding company under the Bank Holding Company Act.

The legislation would allow existing ILCs to continue operating under current rules and give the FDIC time to review ILC applications that are already pending. Further, the bill would prevent federal banking agencies from approving a change in ownership of an ILC unless the buyer is supervised by the Federal Reserve.

Federal lawmakers have been proposing bills to close the ILC loophole since at least 2007, including in December 2023 but none have passed (see Banking and Finance Law Daily, Jan. 2, 2024).

Broad support. In a letter to Kennedy and Kim, a broad coalition of groups representing financial institutions, consumer protection organizations, and public interest advocates expressed support for the measure. The letter was co-signed by Americans for Financial Reform, the Bank Policy Institute, the Center for Responsible Lending, the Consumer Federation of America, America’s Credit Unions, Independent Community Bankers of America, National Community Reinvestment Coalition, the National Consumer Law Center, and the U.S. Public Interest Research Group.

“The ILC exemption was not intended to provide an avenue for commercial, retail, or tech firms to enter into banking,” the letter reads, in part. “When this exception was initially created, ILCs were typically small financial institutions, and companies used the charter for the limited purpose of providing small loans to industrial workers who could not otherwise obtain credit. However, since that time, large commercial companies have used the ILC charter to gain access to the U.S. financial system and control entities that have essentially all of the powers of a full-service commercial bank, including the ability to accept deposits, make consumer and commercial loans and facilitate payments.”

The Independent Community Bankers of America (ICBA), which co-signed the letter to the senators, also issued a separate statement voicing support for the bill. The statement cited a recent white paper in which the ICBA argued that the ILC loophole “poses a serious threat to financial stability and creates the risk of losses to the FDIC Deposit Insurance Fund.”

Companies: America’s Credit Unions; Americans for Financial Reform; Bank Policy Institute; Center for Responsible Lending; Consumer Federation of America; Independent Community Bankers of America; National Consumer Law Center; National Community Reinvestment Coalition; U.S. PIRG

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