ILC Gets OK after Unusual Consultation

By Adler, Joe | American Banker, September 13, 2007 | Go to article overview

ILC Gets OK after Unusual Consultation


Adler, Joe, American Banker


WASHINGTON -- WellPoint Inc., an Indianapolis health insurer, has succeeded where others, including Wal-Mart Stores Inc., have failed: getting the Federal Deposit Insurance Corp. to approve its application to open an industrial loan company while continuing to engage in commercial activities.

Perhaps more peculiar, the approval was granted at a closed-door meeting Tuesday only after the FDIC asked the Federal Reserve Board to weigh in, even though the FDIC is the sole federal regulator for industrial banks. At issue was whether WellPoint's disease management and mail-order pharmacy services disqualified it from receiving an ILC charter under the FDIC's temporary moratorium on approving applications for firms that engage in commercial activities. In an unusual move, the FDIC sought comment from the Fed to determine whether those activities were financial in nature.

In an order late last week, the Fed said that the activities were not financial in nature, but were "complementary" to WellPoint's financial operation - essentially saying the activities were consistent with the standards of the Bank Holding Company Act. Disease management and mail-order pharmacy offerings help customers limit their insurance costs and "complement the financial activity of underwriting and selling health insurance," the order said.

After getting the Fed's order, the FDIC granted WellPoint deposit insurance. The Utah Department of Financial Institutions is still considering the ILC's charter application.

The approval raised eyebrows among industry observers, who said the collaboration by the FDIC and the Fed on an ILC application is extremely rare. Observers also wondered whether other companies should be allowed to seek similar relief from the moratorium, which is set to expire Jan. 31. "It's sort of baffled a few people," said George Sutton, a private lawyer in Utah who represents several ILCs.

He said the decision "makes sense" and raises hopes for others trying to get in the door.

"I've got other clients that are blocked by the moratorium who are again asking this question: 'Well, what's the difference? Why are we foreclosed?' They consider themselves very reputable, legitimate companies who only want to get into banking for the right reasons."

In the past the FDIC and the Fed have differed on their views of ILCs. The Fed has said that no commercial company should be able to own one, and that it does not feel the FDIC has sufficient supervisory authority over ILC parents. Former FDIC officials have repeatedly defended their regulation of such companies.

But more recently the two agencies have appeared to find common ground.

The Fed said recently that it supported a bill that would give the FDIC consolidated holding company authority over ILC parents. The FDIC has said it would not approve any commercial company's ILC application while Congress considers a bill on the issue.

But observers said the latest collaboration was even more surprising.

"Are the two agencies now going to sort of be in cahoots vis-a-vis ILCs? …

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