Financial Services Avenue Closed To New Non-Banks In The US

by Glen Shapiro, LawAndTax-News.com, New York

25 March 2004

A bill passed by the US House of Representatives earlier this month has effectively closed the door for new non-banking organisations seeking to offer financial services.

The Financial Services Regulatory Relief Act is intended to simplify and reduce banking regulation, and additionally contains a provision lifting the restriction on industrial loan companies (ILCs) opening new branches in states other than the one in which they are based.

Establishing or purchasing an ILC is one of the only ways in which non-banking organisations in the US can offer services such as loans to their customers. In response to concerns from the banking industry, they have traditionally been prevented from expanding across state lines.

However, although the bill, which must also receive Senate approval, lifts the restrictions which prevent ILCs from offering services on a national level, it also stipulates that only companies which received Federal Deposit Insurance before October 2003, or which receive at least 85% of their income from the provision of financial services, will be permitted to branch out.

This will effectively prevent retailers such as Wal-Mart from establishing national ILCs, a move which has been welcomed by the US financial services industry.

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