*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 - Congress vowed to move forward with its effort to bar non-financial companies from the banking business, even after the nation's largest retailer, Wal-Mart Stores Inc., withdrew its application for an industrial loan company - a so-called back-door bank. ILCs are state-chartered banks with federal deposit insurance under the Federal Deposit Insurance Corp.
But Wal-Mart, which withdrew its application under withering opposition from community banks and labor groups, now says it has not entirely abandoned its plans for an ILC entirely, only that it's recognized the political landscape was tilted against its proposal.
Wal-Mart's pitch
The retail giant insisted all along it wanted the bank charter to gain access to federal payments system, so it could save on the tens of millions of dollars it pays each year to process more than $2.5 billion in transactions. As justification for its bid, Bentonville, Ark.-based Wal-Mart pointed to one competitor, Target Corp., which has been approved to operate its own ILC.
But opponents, worried that Wal-Mart would evict the 300 banks and credit unions that operate branches within 1,150 of its stores, and under-price local banking competitors as it has local retailers, waged a heated battle to block the Wal-Mart application.
Opponents pointed to inroads Wal-Mart has made in other financial services, including the retailer's growing number of in-store check-cashing facilities, credit cards, as well as its own fledgling ATM network, to back their fears. Wal-Mart also recently obtained approval from authorities in Mexico to develop a banking network there.
Throughout the controversy, Wal-Mart insisted the critics were wrong.
"At no stage did we intend to use the [ILC] to establish branch-banking operations, as critics have suggested," said Jane Thompson, Wal-Mart's president for financial services. "We simply sought to reduce credit- and debit-card transaction costs."
After fielding almost a record 10,000 comment letters against the proposal, FDIC initiated a six-month ban, which last year was renewed for another year, against all new non-financial ILCs. Among the applications affected is one from Home Depot, which says it wants to start financing home-improvement loans.
The withdrawal of the Wal-Mart bid won't end congressional efforts to reign in ILCs, which have provided back-door access to the banking system for dozens of companies in recent years. Utah, which has the most liberal ILC powers, has granted charters to automakers Ford, General Motors, Volvo and Volkswagon, as well as Target, Pitney Bowes, Merrill Lynch, Goldman Sachs, UBS, American Express, CitiCorp, and CIT.
"I appreciate the constructive step by Wal-Mart not to pursue an ILC charter, but it does not in my judgment remove the need to legislate in this area," said Barney Frank, chairman of the House Financial Services Committee.
The Financial Services Committee was scheduled to hold a hearing on a bill that would bar a banking charter for any entity that doesn't conduct at least 85 percent of its business in the financial-services arena. But the bill's prospects are questionable, insiders say, because the bill has not been introduced in the Senate and Wal-Mart's application withdrawal may have drained the issue's energy.
