Senators John Kennedy (R-La.) and Andy Kim (D-N.J.), both members of the Senate Banking Committee, have reintroduced the Close the Shadow Banking Loophole Act. The proposed legislation aims to require companies that operate like banks to follow the same rules and be subject to Federal Reserve oversight as traditional banks.
Under current law, some companies provide banking services through industrial loan companies (ILCs), but their parent firms are not held to the same Federal Reserve supervision as standard bank holding companies. The new bill seeks to address this regulatory gap, aiming for a level playing field and enhanced consumer protection.
“When a company looks like a bank, acts like a bank, and talks like a bank, Congress should treat it like a bank—but a loophole in federal law still lets some companies offer banking services without the same rigorous supervision. Our bipartisan Close the Shadow Banking Loophole Act would fix that gap and help keep Americans’ hard-earned money—and our financial system—safe,” said Kennedy.
“If you get to act like a bank, you need to follow the same rules as banks. The sooner Congress acts to apply uniform standards to all banking institutions and closes these shadow banking loopholes, the better we protect consumers and support the stability and security of our overall banking system,” said Kim.
The bill would require any company owning or controlling an ILC to face standard Federal Reserve supervision under the Bank Holding Company Act. It allows existing ILCs to continue operating under current regulations while giving time for pending applications at the Federal Deposit Insurance Corporation (FDIC) to be reviewed. Additionally, it blocks federal agencies from approving changes in ILC ownership unless buyers are supervised by the Federal Reserve.
ILCs were originally created in 1910 for providing loans to industrial workers but have since evolved. Some non-bank firms now use ILCs for offering banking services while avoiding consolidated oversight applicable to regular banks. This situation can limit regulators’ ability to assess risks when parent companies have other business interests.
Kennedy’s legislative efforts on financial regulation align with his role as chair of the Senate Committee on Banking, Housing and Urban Affairs. He also serves on committees addressing appropriations, budget matters, energy and natural resources according to his official website. His work includes supporting veterans, farmers, small businesses and national security initiatives throughout Louisiana.
The legislation is supported by organizations such as Americans for Financial Reform, Bank Policy Institute, Center for Responsible Lending, Consumer Federation of America, America’s Credit Unions, Independent Community Bankers of America, National Community Reinvestment Coalition, National Consumer Law Center and U.S. Public Interest Research Group.
“We support the Close the Shadow Banking Loophole Act and urge swift passage of the bill into law. Companies that act like banks should be regulated like banks. The ILC loophole blurs the line between banking and commerce and undermines Congressional safeguards to the detriment of consumers and the safety of the financial system,” these organizations stated jointly.
Kennedy first introduced similar legislation in December 2023.
