Wal-Mart Stores Inc. Pulls Application for ILC Charter
Sources:
The Wall Street Journal and
ICBA and ABA News Releases
Wal-Mart Stores Inc., Bentonville, AR, has “thrown in the towel” and decided to withdraw its application to operate an industrial loan company (ILC) charter. Citing the “manufactured controversy” surrounding its July 2005 application to the Federal Deposit Insurance Corporation to operate an ILC, Wal-Mart on March 16 said it withdrew its application for deposit insurance for a UT-based ILC. It reported it would instead expand further into other financial services that don’t require an ILC charter, i.e., financial services that don’t require as much regulatory approval and public transparency.
Amid an outcry from banking trade groups, union groups, community organizations, and some lawmakers, the FDIC decided on January 31 to extend its ILC insurance application moratorium for one year to give Congress time to more thoroughly study the loophole in the law which allows commercial firms to own banks. The Wal-Mart application was part of the group of applications seeking FDIC insurance approval for its ILC charter application.
Wal-Mart had repeatedly said it intended to use the ILC only to process credit-card transactions, not to operate branches in its 4,000 U.S. stores. However, the company’s recently received approval of banking powers in Mexico and its renegotiation of the terms of leases with a number of banks operating in 1,200 Wal-Mart stores may suggest otherwise.
The response to Wal-Mart’s decision from banking trade groups was as expected. The primary community banker group critic, The Independent Community Bankers of America, cheered the decision. James P. Ghiglieri Jr., ICBA chairman and IL community banker, said, ”America’s consumers and America’s communities are the true winners.” The American Bankers Association said the withdrawal was a “welcome development.” Both associations said they support legislation to close the ILC loophole permanently. (The Industrial Bank Holding Company Act, H.R. 698, introduced by Reps. Barney Frank (D-MA) and Paul Gilmore (R-OH) and co-sponsored by 81 members of Congress would close the loophole in the Bank Holding Company Act and prohibit non-financial companies from using an ILC charter to skirt the law preventing commercial firms from owning FDIC-insured financial institutions.)
A Wal-Mart spokesperson described the theory that Wal-Mart has run out of options for growing its financial services business as “nonsense.” While the company does not break out its financial-services revenue in its much larger “other income” category, division president Jane Thompson has said the division is growing by 50% or more annually.
What is next for the world’s largest retailer in the financial services arena? As mentioned earlier, Wal-Mart will be learning how to operate a consumer banking network when it starts setting up a planned 576 branches of Wal-Mart de Mexico SAB in July 2007.
Wal-Mart said it will expand further into other financial services that don’t require an ILC charter, such as check cashing and bill payment. In addition, in a recent article by Damian Paletta in The Wall Street Journal, it was reported that Wal-Mart has been quietly renegotiating the terms of leases with a number of banks operating in its stores “giving Wal-Mart itself the explicit right to offer mortgages, home-equity lines of credit, and consumer loans.” According to the article, more than 300 banks operate 1,200 branches inside Wal-Mart stores across the U.S., and the company plans to add 200 more by 2009. The article said that most of the banks have 15-year leases for banking space in Wal-Mart stores.
Also mentioned in the article, a portion of one the leases obtained by Dow Jones Newswires gives Wal-Mart the “ability to offer debit cards and investment and insurance products either directly or through a third-party vendor. In the wording of the lease, Wal-Mart could offer these products in check-out lanes, at the customer-service desk, through automated-delivery channels, kiosks, or any other place in the store.”
The company minimized the importance of the lease changes, as spokesperson Kevin Gardner said the lease language didn’t “signal anything new.” He said, “We’ve been offering services like check cashing, money transfers, branded credit cards and bill payments for some time. Our strategy is to continue to grow our existing financial services to save our customers money so they can live better.” Stay tuned!
