About the author: Ed Roberts is a seasoned financial industry reporter and contributor to ATM Marketplace. To submit a comment about this article, contact the editor, Tracy Kitten.
WASHINGTON - Even without the giant shadow of the Wal-Mart Stores Inc. application for a bank charter, Congress's efforts to bar a backdoor entry into banking are moving forward.
Members of the House Financial Services Committee and federal banking regulators, including the Federal Reserve, agreed that the United States - unlike Europe - is not yet ready to mix commerce and banking. And the Financial Services Committee has appeared poised to pass a bill that would require any owner of an industrial-loan-company charter, a so-called back-door bank, to conduct the majority of its business in the financial-services realm.
Momentum on the bill has continued since Wal-Mart's withdrawal from an ILC some eight weeks ago. The momentum continues because other non-financial entities, including Home Depot and ChryslerDaimler, have ILC applications pending.
Barney Frank, the Massachusetts Democrat who chairs the Financial Services Committee, said a bill he co-sponsored would allow six states that charter ILCs to continue, as long as financial services account for 85 percent of the charter companies' business.
Paul Gillmor, the Ohio Republican who co-sponsored the bill with Frank, said his concern is that increasing numbers of non-financial companies will continue to seek entry into banking via the ILC charter.
"A number of commercial, industrial firms have discovered this loophole and are now trying to drive a train through it," he said.
Commercial entities that have already obtained ILC charters are: Target Stores, CMS Energy, Pitney Bowes, General Motors, Ford, Toyota, BMW and Flying J, a provider of services for the trucking industry.
Among the concerns are that commercially owned ILCs are not subject to the same rigorous consolidated regulatory review as financially owned ILCs.
But Edward Leary, commission of the Department of Financial Institutions, said the bill will limit consumer choice in finance and innovation. He called it anti-consumer and anti-competitive.
The ILC bill was introduced in the last Congress, just as the debate over the Wal-Mart bank began to heat up. But it was never voted on.
Even with the momentum seeming to build this year, the bill's chances appear to be slight, given the elimination of the Wal-Mart issue from the debate.
