Decision due on Wal-Mart bank
Posted on Monday, January 29, 2007
WASHINGTON - The federal agency that insures bank deposits is expected to decide this week whether Wal-Mart Stores Inc. can move ahead with its plan to open a bank.
Wal-Mart critics want the Federal Deposit Insurance Corp. 's board, which meets Wednesday, to deny the retailer's application for a type of bank known as an industrial loan company, or ILC.
Since the Great Depression, Congress has kept commercial companies out of the highly regulated banking industry. But ILCs are an exception. These limited-service banks can be owned by commercial companies, such as retailers, and are free to make loans and take deposits insured by the taxpayers.
Critics argue that if the FDIC board can't find legal reasons to reject Wal-Mart's ILC application, it should extend an expiring moratorium on new ILCs. Renewing the sixmonth ban would to give the Democratic-controlled Congress time to pass legislation to block non-financial companies from expanding into banking.
About a dozen other consumer-oriented companies also are seeking FDIC approval for ILC applications. For example, Home Depot wants to buy an existing bank, EnerBank USA, to offer home improvement loans.
Opponents fear big retailers will squeeze out community banks. But none of the other applications has stirred the same level of opposition as the one by Wal-Mart, the world's largest retailer.
"We're looking forward to a decision"on the ILC application pending since mid-2005, Wal-Mart spokesman Kevin Gardner said. "We're going to work closely with the FDIC as we move forward on our application."
FDIC spokesman David Barr would not predict what the board might decide.
House Financial Services Committee Chairman Barney Frank, D-Mass., plans to introduce legislation to clamp down on ILCs, perhaps as early as this week.
Originally, Congress exempted state-chartered ILCs from heavy federal regulation because they were supposed to be minor companies that helped low-income industrial workers get small consumer loans.
But since the early 1990 s, more and more large commercial companies, including General Motors Corp., Target Corp. and American Express Co., have been opening ILCs to process loans and credit card transactions. Today, more than 60 companies operate ILCs.
These banks attracted little attention until Wal-Mart announced it wanted a Utahchartered ILC. Labor activists, community bankers and others flooded the FDIC with protests, prompting the agency to hold hearings last spring. In the summer, it declared a moratorium on all ILC applications through the end of January.
Wal-Mart says it would not compete with community banks. Instead, the Bentonvillebased retailer says it would use its ILC only to process its own stores' credit and debit card transactions and electronic check payments.
Last year, Frank and Rep. Paul Gillmor, R-Ohio, cosponsored a bill to discourage commercial companies from entering banking by limiting federal deposit insurance to enterprises that derive at least 85 percent of annual gross revenues from financial services.
This year, the legislation likely would win broad support in the House, but could face a tough battle in the Senate. That's because Sen. Robert Bennett, R-Utah, is arguing that ILCs give consumers more banking choices.
Utah is home to nearly three dozen ILCs.
"ILCs are Utah's baby," said David Nassar, executive director of Wal-Mart Watch, a union-backed group that opposes Wal-Mart's ILC application. Bennett "will do whatever he can to protect them."
Since the new Congress convened this month, Frank and Bennett have been trying to work out compromise legislation.
Also this month, Frank and Gilmor each met with FDIC Chairman Sheila Bair to urge her to continue the moratorium.
To discourage Wal-Mart from going forward even if it does get FDIC permission, Frank has said he would make his legislation effective from the date of its introduction. So if it were introduced this week, the legislation could undo Wal-Mart's ILC later this year, even if the FDIC approved it now.
Frank's spokesman Steven Adamske said the congressman is determined "to keep the line separating commercial companies from banking."
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