By Orla McCaffrey and Mike Colias
General Motors Co. is looking to get back in the banking business.
The auto maker's lending arm is drawing up plans to apply for a banking charter, a move that would allow it to accept deposits and expand its auto-finance business, according to people familiar with the matter.
General Motors Financial Company Inc. has been talking to federal and state banking regulators for months about forming an industrial loan company and could file applications to do so as early as December, the people said. It would be supervised by the Federal Deposit Insurance Corp. and the Utah Department of Financial Institutions, which grants the majority of these charters.
An industrial-loan charter allows companies to own both commercial firms and banks, a setup prohibited by a traditional banking license.
This is familiar territory for GM. The auto maker used this type of charter to operate GMAC, its former lending arm that nearly failed under the weight of soured subprime mortgages and was bailed out by the government during the 2008 financial crisis.
This time around, the company would use its banking charter -- and the ability to accept deposits -- to support its auto-finance business, according to a person familiar with the matter. Deposits would provide a stable, low-cost source of capital for GM Financial to grow its business of lending to GM car buyers and dealers. GM Financial currently issues debt to fund most of its lending.
The company has also considered using the charter to offer consumers high-yield savings accounts and other deposit products, the person said.
Deposits at U.S. commercial banks have reached record highs this year as consumers and businesses alike, spooked by the economic fallout of the coronavirus pandemic, stash money at banks despite paltry interest offered in return.
GM Financial has accounted for a growing share of GM's revenue in its decade under the GM brand. It brought in about $14.5 billion last year, 10.6% of GM's total revenue. That is up from 0.2% in 2010 and 4.2% in 2015.
Auto makers use their lending arms to lure customers with special offers and promotional rates on loans and leases. Dealers rely on these businesses to make loans to customers with less-than-stellar credit and to finance their new-car inventory. Toyota Motor Corp. and BMW AG own industrial banks that offer products outside auto finance, including home loans and credit cards.
Applications for industrial-loan charters dried up after the financial crisis, but they have experienced a revival in recent years alongside a broader increase in new bank applications. The FDIC and Utah Department of Financial Institutions approved deposit insurance and charter applications, respectively, for Square Inc. and Nelnet Inc. earlier this year. A few additional applications are pending.
Industrial banks share many of the same powers of traditional banks, but their parent companies are exempt from oversight by the Federal Reserve as bank-holding companies and aren't subject to some regulations that apply to federally chartered depository institutions.
Traditional banks and consumer advocates have long argued that they blur the line between commerce and banking and pose threats to consumers. More than a decade ago, a wave of opposition led by the banking industry pushed retailers Walmart Inc. and Home Depot Inc. to abandon their attempts to secure industrial-loan charters.
GMAC transitioned from its industrial-loan charter during the financial crisis when losses in its consumer-lending businesses prompted a government bailout that ultimately topped $17 billion. In late 2008, the company was granted a national banking charter in a matter of weeks, a move that unlocked government relief it had been ineligible for as an industrial bank. Shortly after, the bank changed its name to Ally Financial Inc. GM sold its remaining Ally stake in 2013.
GM Financial grew out of the auto maker's 2010 acquisition of AmeriCredit Corp., a Texas-based subprime auto lender. In 2013, it doubled in size through the purchase of Ally's international auto-lending operations.
Write to Orla McCaffrey at firstname.lastname@example.org and Mike Colias at Mike.Colias@wsj.com
(END) Dow Jones Newswires