Despite a moratorium on approving industrial loan company (“ILC”) deposit insurance applications and change in control notices, the Federal Deposit Insurance Corporation (“FDIC”) announced that it would not disapprove a change in control notice filed by a group of investors (“Consortium”) led by Cerberus Capital Management LP in regard to GMAC Automotive Bank (“GMAC Bank”), an ILC chartered in the State of Utah. The Consortium has agreed to acquire a 51 percent stake in General Motors Acceptance Corp. (“GMAC”), parent of GMAC Bank. According to the FDIC, the approval of the change in control notice was specifically tailored to facilitate the GMAC transaction as part of General Motors’ restructuring efforts.

However, the FDIC’s action is really only a two-year approval, since it requires the execution of a Disposition Agreement that contains some unique conditions. Within two years, the Consortium must either: (1) divest control of the bank; (2) terminate the bank’s insured status; (3) become a registered bank or thrift holding company; or (4) obtain a waiver from the FDIC based on applicable law and FDIC policy that allows similarly situated companies to acquire control of FDIC-insured ILCs.

The critical question these conditions raise is whether these conditions signal the direction in which the FDIC or the law may be headed.

Because owners of ILCs are not deemed to be bank holding companies and thus are not subject to the activity restrictions of the Bank Holding Company Act, ILCs have posed an interesting set of issues that have become the focus of a national debate, that was largely thought to have been resolved in the Gramm-Leach-Bliley Act of 1999, regarding the extent to which commercial organizations can own depository institutions.

There presently are 61 insured ILCs owned by firms such as Target, Pitney Bowes, and BMW. Because of issues raised by the Wal-Mart application, the FDIC imposed a six-month moratorium in July 2006 on approving any ILC application for FDIC insurance, as well as any acquisition of an ILC. The announcement of the moratorium did provide for FDIC exceptions for good cause. The applications of twelve companies, including Daimler Chrysler, Wal-Mart, and Home Depot, are being delayed by the moratorium, which is scheduled to expire on January 31, 2007.

On November 15, 2006, the FDIC granted the application of the Consortium to take control of the GMAC Bank despite the moratorium. In the related press release, the FDIC termed the GMAC Bank acquisition as unique and should not be interpreted as suggesting the direction of any ultimate FDIC decision regarding ILCs. In addition to the Disposition Agreement, the FDIC approval requires (i) the execution of a Capital Maintenance Agreement by GMAC Automotive Bank and its direct and indirect parent companies; (ii) Cerberus’ Senior Managing Director to make disclosures to the FDIC and GMAC Bank regarding affiliates he controls and any relationships between such affiliates and GMAC Bank; and (iii) that GMAC Bank not engage in transactions with foreign affiliates without prior approval.

This action by the FDIC appears to reflect the willingness of an applicant to compromise to get a transaction done and the desire of the FDIC to retain flexibility in regard to future ILC decisions that may be based on a combination of regulatory and legislative developments.