The Detroit-based company said Monday that the approval allows it to "engage in a broader range of business activities and can continue to operate its insurance and remarketing businesses as part of its" auto-dealer services operation.
As with bank holding companies, the Fed regulates financial holding companies, which can offer certain nonbanking services that are deemed off-limits to banks.
The Fed's decision comes as Ally has taken several steps to bolster its finances, check off several legal hurdles and lay the groundwork to repay the remainder of its U.S. government bailout five years after the financial crisis.
Ally, formerly the in-house lender for General Motors Co., was approved to become a bank holding company in December 2008, enabling it to receive $17.2 billion in government funds through the U.S. Treasury Department's Troubled Asset Relief Program. The company had repaid about $12.3 billion of that amount as of last month.
Most of Ally's insurance activities as well as a vehicle-remarketing platform it offers to car dealers called SmartAuction are not allowed as a bank holding company, the company has said in regulatory filings.
The company initially faced a December 2010 deadline to bring its activities into compliance, but the Fed ultimately granted it several extensions, pushing that deadline back to the end of this year.
"Ally's existing activities and investments deemed impermissible" as a bank holding company "will need to be terminated or disposed of by December 2013," Ally said in a March filing. In order to continue offering such services, it said it planned to apply for financial holding company status once it met certain regulatory requirements.
Ally said Monday that it applied for that status this month.
Standard & Poor's Ratings Services upgraded Ally's credit rating earlier this month by two notches to BB but warned it would potentially lower the company's ratings if it failed to secure financial holding company status.
Ally is the third-largest U.S. auto lender by market share, according to Experian PLC. Its biggest partnerships have been with GM and Chrysler Group LLC dealers, though the company has formed relationships with other manufacturers in recent years as exclusive agreements with those two auto makers phase out and competition from other banks to provide auto loans has increased.
The U.S. government is currently examining its options for divesting its 64% stake in the auto lender, which last month repurchased $5.9 billion of preferred shares owned by the Treasury.
The Treasury has said an initial public offering or private stock sale could be options for unloading its remaining stake in the company.
Litigation tied to its subprime mortgage subsidiary Residential Capital LLC had dogged Ally's efforts to move forward on repaying the government. ResCap filed for Chapter 11 bankruptcy protection in May 2012 in an effort to help sever Ally from those issues.
A U.S. Bankruptcy Court judge approved ResCap's bankruptcy-exit plan earlier this month.