July 29, 2021

Banking charter for GM’s captive could expand auto lending

General Motors is planning to apply for a banking charter that would allow its lending unit to hold deposits and expand its auto finance business, The Wall Street Journal reported last week, citing people familiar with the matter.

The automaker’s finance arm, GM Financial, has been talking to federal and state banking regulators for months about forming an industrial loan company and could file its applications as early as December, the report said.

A GM Financial spokeswoman declined to comment on the report or answer further questions on the matter.

Forming an industrial loan company would aid auto financing for the lender to support its auto finance business through deposits. The charter also would allow the lender to offer consumers high-yield savings accounts and other deposit products to auto customers.

Industrial loan company charters allow nonbanks to originate loans and collect insured deposits. Operating under the charter also provides lenders the ability to participate in government-backed lending, which came in handy for at least one leading automaker this year.

The distinction helped Toyota Motor Co.’s Toyota Financial Savings Bank qualify as a lender for the Small Business Administration’s Paycheck Protection Program. The automaker distributed $500 million in program loans to U.S. dealerships this summer.

GM Financial helped 27 dealers who were unable to access the program on their own but could not directly offer the loans under their current structure.

GM’s former captive finance company, General Motors Acceptance Corp., operated under an industrial loan charter, the Wall Street Journal reported. Participation in the mortgage industry, particularly subprime home loans, hindered the lender’s business during the 2008 financial crisis. GM spun off the captive in 2009, which rebranded as Ally Financial Inc. the following year. The automaker sold its remaining stake in Ally in 2013.

Reuters contributed to this report.