Even as Washington policymakers bicker over plans to let nonfinancial firms own banks, Utah officials have made it easier for nearly any company to offer banking services.
Gov. Mike Leavitt signed a law March 12 ending a 10-year freeze on the issuance of industrial loan company charters, which have no restrictions on ownership. These institutions, permitted to make commercial loans, are covered by federal deposit insurance.
The new law opens the door for many companies to enter the banking business without the Federal Reserve Board supervision required for bank holding companies.
There's just one catch: industrial loan companies with $100 million or more in assets may not offer checking services.
"These charters allow you to do just about anything a national bank can do except hold checking accounts," said John L. Richards, president of Advanta Financial Corp., a Draper, Utah, industrial loan company owned by Spring House, Pa.-based Advanta Corp.
A growing number of diversified financial companies, most of them forbidden from owning a commercial bank, have been buying up existing industrial loan charters in Utah during the 1990s.
By giving the state bank commissioner authority to grant new industrial loan company charters, Utah officials hope to recruit a host of major employers to the state.
Industrial loan companies owned by Advanta, American Express Co., GE Capital Services Corp., Dean Witter, Discover & Co., and 12 other corporations already employ roughly 2,000 people in Utah, according to state officials. Thousands more are employed in affiliated credit card servicing operations.
Advanta's industrial loan company primarily serves as the parent company's small-business lender. The $375 million-asset institution offers credit cards and equipment leasing to small businesses.
"Each industrial loan company's operation is based on the overarching strategy of its parent company," Mr. Richards said.
Companies gearing up to launch operations in Utah include Green Tree Financial Inc., Capital One Financial Corp., and Sears, Roebuck and Co. Of the 27 charters in existence, 11 are inactive, but most need only approval from the Federal Deposit Insurance Corp. to begin operation.
Growing demand has pushed up the going rate for an inactive charter to $400,000 from $20,000 in 1987, said Garry Cox, Utah's director of industrial loan company supervision.
Mr. Cox said Utah already has a large waiting list for new charters, which become available July 1.
Industrial loan companies also are permitted in California, Colorado, and Hawaii, but Utah's charter is particularly popular with large financial companies. That's because the state permits institutions to "export" their interest rates across the country, regardless of interest rate caps in other states.
"We can issue products on a nationwide basis without worrying about Tennessee's usury rates being different from Florida's," Mr. Richards said.
Utah's industrial loan charter also has key advantages over other types of banking operations used by many diversified financial firms.
For instance, commercial firms also may own unitary thrifts, but those institutions may not offer commercial loans and must meet mortgage lending requirements set by the Office of Thrift Supervision.
Also, industrial loan companies are insured by the FDIC's Bank Insurance Fund, which is considered more stable than the thrift fund and for the next two years will charge lower premiums.
Commercial-loan restrictions also prohibit credit card banks from serving business customers.
"Next week we are launching our small-business card program," said Wallace M. Jensen, president of AT&T Universal Financial Corp. "That wouldn't be allowed under a credit card bank charter."
The freeze on industrial loan charters was instituted following a wave of failures in 1987.
