Bills Aim to Stop Retailers from Expanding into Banking

A new bill before the U.S. House of Representatives proposes restricting bank ownership by commercial companies in an effort to stop big retailers from moving into financial services.

The Federal Deposit Insurance Corp. (FDIC) is now reviewing applications by Wal-Mart Stores Inc. and Home Depot Inc. to buy or form industrial loan companies, or ILCs. Wal-Mart wants to open an ILC to process debit and credit card transactions. Home Depot has said its ILC would provide home improvement loans, Reuters reported.

Twelve additional retail, automotive and financial services companies are also seeking federal approval of ILCs. The FDIC has never had this many applications pending at the same time, MarketWatch reported.

The proposals are facing an uphill fight, as consumer advocates and community bankers believe approval could lead the retailers to begin offering other services, such as opening bank branches.

With an ILC, a company could do just that, as well as make loans, take deposits and process credit cards. While the FDIC would decide whether the ILC can have deposit insurance, it is up to the states to issue the actual charters.

Wal-Mart’s proposal has triggered huge opposition, and Home Depot’s plan is also unpopular. “Home Depot's proposed business plan is a perfect example of why banking and commerce should not be mixed," National Association of Realtors President Thomas Stevens said in a letter to the FDIC, according to the Contra Costa Times. "This plan will have an anti-competitive effect and adversely affect Home Depot's competitors and other banks."

Opponents of the idea say that the bill would “close the ILC loophole” that allows commercial firms to own an ILC. Historically, commerce and banking activities have been kept separate to protect risk faced by the $49 billion Federal Deposit Insurance Fund if the bank fails.

"It definitely seems that more and more companies are seeking to squeeze their way through this loophole," said Karen Thomas, executive vice president of government relations at Independent Community Bankers of America. "It illustrates the incendiary nature of these applications. The FDIC has to tread very carefully...because of the heightened focus of the issue," she told MarketWatch.

Lobbyists told Reuters that they foresee a bill that would bar a company from owning and operating an ILC unless 85 percent of its revenue is generated from financial services.

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