Wal-Mart gives up bid for bank charter

BY STEVE PAINTER

Posted on Saturday, March 17, 2007

Email this story | Printer-friendly version

Wal-Mart Stores Inc., under intense political pressure, abandoned plans Friday to establish a federally insured bank but said it still intends to get into the lending business.

The move came a day after a congressman accused the Bentonville-based company of misleading federal banking regulators about its plans for an industrial loan company, commonly referred to as an industrial bank.

“Unlike dozens of prior ILC applications, Wal-Mart’s has been surrounded by manufactured controversy since it was submitted nearly two years ago,” Jane Thompson, Wal-Mart Financial Services president, said in a statement.

Bank groups and Wal-Mart’s political critics described the company’s decision as a victory and the nation’s chief bank regulator said it was a good move.

“Wal-Mart made a wise choice,” said Sheila Bair, chairman of the Federal Deposit Insurance Corp.

“This decision will remove the controversy surrounding their intentions,” she said in a statement. “They don’t need an ILC to play an important role in expanding access to financial services, they can do so by partnering with banks and others.”

Earlier Wal-Mart efforts to buy banks in Oklahoma, California and Canada also fell victim to political opposition.

Under pressure from Congress, the FDIC in January extended for one year a moratorium on new industrial loan company charters.

Wal-Mart’s application, pending in Utah for nearly two years, drew strong opposition from the banking industry even though companies such as Target Corp., one of Wal-Mart’s rivals, and huge industrial operations such as General Motors already operate such banks.

Wal-Mart said it would use the bank to save money by processing its own credit card and debit card transactions rather than paying other companies for that service.

Those fees continue to mount for retailers as fewer customers pay with cash or check, said Bill Bishop, chairman of the retail consulting firm Willard Bishop in Barrington, Ill.

“What many retailers are seeing is that the fastest-growing line on their profit-and-loss statement is their credit card fees. It’s not small potatoes for the retailer. It’s a big deal,” he said.

Banks, however, fought the application, fearing it would give the world’s largest retailer a foot in the door of the banking industry.

On Thursday, Rep. Paul Gillmor, R-Ohio, released an e-mail Wal-Mart sent to banks that operate branches in its stores. The e-mail said Wal-Mart reserved the right to offer a variety of consumer financial services such as mortgages, home-equity loans and investment and insurance products.

Gillmor, co-sponsor of a bill that would block retailers from operating FDIC-insured banks, said the e-mail contradicted Wal-Mart’s statements that the proposed bank would be limited to handling card transactions.

The American Bankers Association, which supports Gillmor’s bill, said Friday that the email disclosure raised questions about Wal-Mart’s intent.

“Clearly, Wal-Mart’s application was no ordinary one. If approved, it would have been precedent-setting and could have completely opened the door to commercial firms owning banks,” Edward Yingling, the association’s president and chief executive officer, said in a statement.

Wal-Mart, like many other retailers, offers customers its own store-branded credit card. Transactions are handled by GE Financial Services at a negotiated rate, Wal-Mart spokesman Kevin Gardner said.

Wal-Mart also offers other services such as check cashing, money transfers and utility-bill payments, and estimates that it saves customers $ 245 million a year when compared with other companies’ fees.

Gardner said Wal-Mart charges a flat $ 3 check-cashing fee. He said the average fee for cashing a $ 300 check elsewhere is $ 6.

Wal-Mart Watch, one of two union-funded groups sharply critical of Wal-Mart, predicted that the company would soon be in the payday-loan business, which has come under fire in state legislatures across the country for collecting exorbitant fees on short-term loans.

Asked if Wal-Mart would offer payday loans in the future, Gardner said, “We haven’t made any announcements to that effect.”

Wal-Mart can accomplish much of what it seeks to do — such as mortgage and consumer-lending services — without a bank charter, said Tim Yeager, associate professor of finance at the University of Arkansas at Fayetteville.

The company could issue bonds to finance the loans, likely at a favorable yield because the risk of default would be low, he said.

“It’s easy to see them making consumer loans,” Yeager said. “Finance companies as a whole have been growing very quickly in the last decade. They have been competing very effectively against banks.”

Payday loans would be a riskier business politically, he said, because “it gives their critics an easy target.”

Retailer Home Depot said it would continue to seek approval of an FDIC-insured bank through its proposed purchase of EnerBank USA, spokesman Tony Wilbert said. “We’re aware of what Wal-Mart did today, but that has no impact on our plans,” he said.

To contact this reporter: spainter@arkansasonline. com

FEEDBACK:

Something to say about this topic? Submit a Letter to the Editor online

Copyright © 2001-2009 Arkansas Democrat-Gazette, Inc. All rights reserved. Contact Us