Wal-Mart Gives Up On ILC
Company Says Controversy 'Manufactured'
Last updated Friday, March 16, 2007 10:11 PM CDT in Business
By Anita French
The Morning News
Wal-Mart Stores Inc. withdrew Friday its application with the Federal Deposit Insurance Corp. to open an industrial loan bank, apparently in response to widespread opposition.
The Bentonville-based retailer said in a news release that its action follows FDIC's decision in January to extend the moratorium on a number of industrial loan corporation applications.
"Unlike dozens of prior ILC applications, Wal-Mart's has been surrounded by manufactured controversy since it was submitted nearly two years ago. At no stage did we intend to use the ILC to establish branch banking operations as critics have suggested -- we simply sought to reduce credit and debit card transaction costs," said Jane Thompson, financial services president for Wal-Mart, in the release. "Since the approval process is now likely to take years rather than months, we decided to withdraw our application to better focus on other ways to serve customers."
An industrial loan corporation is a type of bank that commercial businesses can operate for specific purposes, such as processing payments. Wal-Mart could save millions of dollars by processing its own financial transactions, the company has said.
Wal-Mart made its application to open an ILC in Utah in July 2005. Since then, the FDIC received more than 1,500 letters and comments in opposition to the application. Among the critics were commercial bankers, politicians and consumer groups.
The controversy caused FDIC to extend by one year a moratorium on considering ILC applications, it said in January. The decision put on hold applications not only from Wal-Mart, but also from Home Depot Inc., DaimlerChrysler AG and American Pioneer. It also stirred Congress to consider legislation that would prohibit such companies from owning industrial loan corporations.
Critics say the growth of ILCs risks blurring the line between banking and commerce, concentrating assets in the hands of a few big companies and stifling competition. They also expressed concern that Wal-Mart opening an industrial bank would lead to it starting a commercial bank in the future.
The Independent Community Bankers of America in a news release Friday cheered Wal-Mart's decision to withdraw its ILC application.
"A Wal-Mart bank -- owned by the world's largest commercial retailer -- is the poster child for what could go wrong and would pose significant risk to the safety and soundness of the Deposit Insurance Fund and to the stability of our financial and economic system by breaching the long-standing wall between banking and commerce," said Camden R. Fine, ICBA president and CEO.
Wal-Mart has denied it wants to get into commercial banking, but fears were raised again this week when Rep. Paul Gillmor, R-Ohio, a leader of congressional efforts to draw a strict line between commerce and banking, released a Wal-Mart e-mail detailing lease terms with banks that rent space for branches inside hundreds of Wal-Mart stores.
The lease terms in the e-mail said Wal-Mart can offer future services including mortgages, consumer loans, home equity loans, investment and insurance products and any other type of service or product that Wal-Mart might develop.
A Wal-Mart spokesman said at the time that the e-mail was nothing new and reflected similar language it has used in leases with outside banks for at least five years. But Thompson noted in Friday's news release that the company would "continue to introduce new products and services that champion those who deserve convenient, lower-priced financial services."
Gillmor said the lease terms showed Wal-Mart is secretly planning to move into retail banking despite assurances to the contrary in testimony last year to the Federal Deposit Insurance Corp.
Also, American Banker posted on its Web site Friday that Wal-Mart is expected to announce a "separate push to engage in other financial service activities, such as consumer lending, that do not require a bank charter."
Wal-Mart spokesman Kevin Gardner did not confirm or deny the report.
"When we have news in this area, we'll be happy to announce, but we're already saving customers $245 million annually through the basic money services we provide, such as check cashing and money transfers," he said in an e-mail to The Morning News.
Wal-Mart Watch of Washington, a union-backed group that has been critical of Wal-Mart over its employee benefits and policies, also opposed the company's ILC application. In an e-mail Friday, Wal-Mart Watch Executive Director David Nassar said Wal-Mart's withdrawal of its application was a "victory for consumers."
"We continue to have serious concerns about Wal-Mart's desire to get into financial services such as mortgages and payday lending," Nassar said.
-- The Associated Press contributed to this article.
Timeline:
July 18, 2005: Wal-Mart files application with the Federal Deposit Insurance Corp. to open an industrial loan corporation bank in Utah.
Feb. 23, 2006: FDIC announces it will hold public hearings on Wal-Mart's application.
July 28, 2006: FDIC announces a six-month moratorium on all new ILC applications, including Wal-Mart's.
Jan. 29, 2007: Rep. Barney Frank, D-Mass., and Rep. Paul Gillmor, R-Ohio, introduce H.R. 698, prohibiting new ILCs.
Jan. 31, 2007: FDIC announces a 12-month extension of ILC moratorium.
March 16, 2007: Wal-Mart withdraws its application.
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ShopLocal wrote on Mar 17, 2007 9:33 AM:
Too bad wrote on Mar 17, 2007 10:13 AM:
Hmmmm wrote on Mar 17, 2007 11:45 AM:
The banking industry and it's lobbyists wrote on Mar 17, 2007 11:53 AM:
Save the Bankers wrote on Mar 18, 2007 12:15 PM:
To wrote on Mar 18, 2007 1:59 PM:
Not already registered?
rick wrote on Mar 17, 2007 9:31 AM: