Critics Want Congress To Keep Wal-Mart Out Of Bank Biz.

Navigation: Main page

Author: Peterson, Molly M.

Finance

Critics of Wal-Mart's recent application to acquire banking powers in Utah are urging Congress to modify the Bank Holding Company Act to bar commercially owned industrial loan companies from branching out across state lines. "Congressional action is needed to prevent the many dangers posed by the [industrial loan company] loophole before Wal-Mart or a similar entity can exploit it," the Independent Community Bankers of America, the United Food and Commercial Workers International Union, the National Grocers Association and the National Association of Convenience Stores said last week in a letter to all House members. The groups said Wal-Mart's ILC application has created "new urgency" for enacting compromise ILC language included in a business checking bill approved by the House in May and a regulatory overhaul bill introduced last week by Rep. Jeb Hensarling, R-Texas. ILCs are state-chartered banks that provide limited financial services, such as loans or credit cards, in Utah and six other states. The FDIC regulates most ILCs, which can be owned by commercial businesses that are not allowed to own other types of federally regulated banks.

The business checking bill includes a provision allowing ILCs to pay interest on some business accounts. Hensarling's bill includes language giving ILCs powers to expand into other states. But both bills include language authored last year by Rep. Paul Gillmor, R-Ohio, and House Financial Services ranking member Barney Frank, D-Mass., to limit the new powers to ILCs owned by companies that, unlike Wal-Mart, draw at least 85 percent of their revenue from financial activities. Wal-Mart spokesman Marty Heires said if Utah grants the company an ILC license, it would use those new powers only to process its own electronic checking, debit and credit card transactions, rather than paying an outside company for those services. Heires said Wal-Mart has no plans to offer commercial banking services. "What we're doing here is very narrow in focus, and it's simply designed to save us money," Heires said.

But Ron Ence, ICBA's vice president of congressional relations, said his group is skeptical of those claims. "Right now, Wal-Mart has applied for a very limited charter, but there's nothing to prevent them from changing or amending their business plan to get into retail banking services," he said. "Why do we suspect that might be in the back of their minds? Because they've said so. The chairman of Wal-Mart has stated publicly that financial services is [the] next major growth area for Wal-Mart." Ence said enacting the Gillmor-Frank compromise language as part of any ILC-related legislation is a "step in the right direction." But he said ICBA also will push, over the long term, for Congress to subject ILCs to Bank Holding Company Act restrictions that apply to other types of federally regulated banks.

~~~~~~~~

By Molly M. Peterson