Two of the largest car makers in the United States have taken a step forward to launching their own banks.
Ford and General Motors recently received conditional approval from the Federal Deposit Insurance Corporation, the U.S. agency which protects customers’ money, up to a set limit, if a bank fails.
The move could reshape new car financing and offer more competitive loans for buyers, but critics warn that combining banking and commercial operations has the potential for conflict of interest.
Critics also warn that these banks might be tempted to issue risky loans primarily to drive sales, raising concerns about financial stability and consumer protection.
The move comes as new vehicles are getting more and more expensive for consumers, with average prices exceeding $50,000 and longer loan terms increasingly common.
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Under the conditional approvals, issued January 22, Ford and GM have 12 months to get their banks up and running.
Ford Credit Bank and GM Financial Bank will each be chartered as an industrial bank in Utah and permitted to accept FDIC‑insured deposits and offer auto financing products nationwide.
Industrial banks, also called industrial loan companies, have long faced scrutiny from regulators and policy experts because they blur the traditional separation between banking and commerce. Critics argue that this separation exists to prevent conflicts of interest and maintain fair competition.
Ford plans to offer digital savings products, while GM seeks to diversify and stabilize funding alongside its existing finance services.
Ford Credit Bank and GM Financial Bank will help people finance cars nationwide by buying loans from Ford and GM dealers. They will fund these loans mostly using money from customers’ savings accounts and deposits through their website and app. The FDIC approved the banks, but they must meet certain rules, including keeping enough capital on hand, with Ford and GM backing the bank’s finances.
This is a departure from the traditional model. Typically, car loans are funded through traditional banks or credit unions, or the automaker’s finance arm borrows money from investors or wholesale markets, not straight from customers’ deposits.
Supporters of the strategy say these banks will enhance competition and expand access to regulated financial services. The National Association of Industrial Bankers praised the FDIC decision, saying that it could bring greater choice and support for consumer credit across the country.
“GM Financial Bank and Ford Credit Bank will strengthen the critical U.S. manufacturing and automotive sectors through their services to customers,” Frank Pignanelli, Executive Director of NAIB, said in a statement.
However, former FDIC vice chairman Thomas Hoenig, now a senior fellow at the Mercatus Center, a research institute, said that combining banking with commercial operations can create inherent risks.
“The separation of banking and commerce is there for a reason: to avoid conflicts of interest,” Hoenig told The Hill.
The main concern is that a company owning its own bank could use its lending power to benefit itself or affiliated businesses, potentially disadvantaging competitors, Hoenig said.