Friday, March 16, 2007

Wal-Mart is Said to Have Big Banking Plans

from (Credit & Collections – March 14, 2007)

An Ohio representative is planning to release information today that suggests Wal-Mart’s ambitions into consumer banking may extend beyond what the retail giant had previously disclosed. The information, in the form of an e-mail message sent by a Wal-Mart employee, suggested that the company was laying the groundwork to offer its own banking products. Wal-Mart has long insisted that it was not interested in branch banking but was looking to use the bank as a way to save money. But Representative Paul E. Gillmor, an Ohio Republican, said last night that he was concerned that the undated e-mail message suggested that Wal-Mart was telling its tenants, some which are retail banks, that it was reserving the right to become a full-service bank, including the underwriting of mortgages. A Wal-Mart spokeswoman confirmed last night that the company had updated some of its tenant leases late last year to include the language in question but implied that it had been an option all along. “There is nothing new here,” the spokeswoman, Mona Williams, said. “While we recently updated language in our leases, similar language has been in our agreements for at least five years.” The new information comes as the House Financial Services Committee gears up for hearings next week on a closely watched law that would bar non-financial institutions, like Wal-Mart Stores and Home Depot, from operating a bank. Wal-Mart submitted an application in 2005 with the Federal Deposit Insurance Corporation for an industrial bank in Utah that it said would be used to process its own credit and debit card transactions for its 3,500 United States stores. The application almost immediately ignited opposition from lawmakers, consumer groups and financial companies who worried that the company would use its reach to become a retail banking powerhouse. The legislation, and next week’s hearing, are fallout from the application. In an interview last night, Mr. Gillmor said the Wal-Mart was including a clause in some tenant leases that would allow the company to some day expand its banking operations. Wal-Mart currently offers branded credit cards, check cashing and other services through partnerships with financials institutions. “We simply became more specific late last year,” Ms. Williams said, referring to the additional term related to the mortgages. But Mr. Gillmor, who is co-sponsoring legislation that would prevent Wal-Mart and other non-financial institutions from expanding into retail banking, disagreed. “If they were not going to go into full-service banking, why in the world would they do that? There is no other reason,” he said. “They want to be prepared in case they get their way.” Mr. Gillmor would not say who provided him the e-mail document, but a person briefed on the situation said that it came from a banking industry group and was probably three or four weeks old. The e-mail message comes as Congressional lawmakers engage in the latest round of debate over whether non-financial companies, like Wal-Mart and Home Depot, should be allowed to buy or charter so-called industrial loan companies that are operated like banks.
Along with Representative Barney Frank, the Massachusetts Democrat who is chairman of the House Financial Services Committee, Mr. Gillmor recently introduced the legislation that would prevent such companies from starting an industrial bank and restrict some existing ones from expanding. Mr. Gillmor said yesterday that he believed he had enough votes to pass the bill in the House and that there was a “very reasonable” chance of winning Senate approval. Wal-Mart’s application for an industrial loan company charter has been a hot-button political issue with banking industry groups aligning themselves with regulators and some of the company’s fiercest critics. The Federal Reserve Chairman Ben Bernanke said in a speech earlier this month that if Congress was interested in keeping banking and commerce separate, “it should take note of this problem.” The F.D.I.C. said last month that it would extend a one-year moratorium on new applications for the industrial bank charters to allow lawmakers more time to weigh in on the issue. It first imposed a temporary ban in July. Besides Wal-Mart, Home Depot, DaimlerChrysler and Cargill have applications pending. Industrial banks have been around for about a century, initially appearing as small, state-charted banks that offered loans to low-income workers who were turned away by traditional banks. Their special status allowed them to remain exempt from laws barring commercial companies from owning banks. Even though only a handful of states offer charters, their growth has exploded. Today, they are a $177 billion industry, with about 60 companies from General Motors and General Electric to Target and Merrill Lynch operating industrial banks.

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