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Wal-Mart's bank application draws controversy Thursday, Mar 23, 2006 By Alison Vekshin Stephens Washington Bureau WASHINGTON -- An effort by Wal-Mart Stores Inc. to enter the banking arena is being met by a barrage of criticism from community bankers nationwide who fear the world's largest retailer will run them out of business. Weeks before the Federal Deposit Insurance Corporation is scheduled to hold hearings to consider the company's application to charter a bank in Utah, more than 1,900 letters have poured into the agency predominantly urging its leaders to turn down the request. "Our neighboring areas have experienced firsthand the effects of Wal-Mart closing local grocery, clothing and hardware stores that have been a vital part of rural communities for generations," wrote Jim Pieters, president of High Plains Bank in Colorado in a March 3 letter to the FDIC. Beyond its potential to stomp out local banks by opening banks in its retail stores, opponents say Wal-Mart's foray into financial services could blur the historic divide between banking and commerce. Many of the opposition letters were encouraged by the Independent Community Bankers of America, which posted a template on its Web site. A handful of people wrote in support of the application. "Wal-Mart should be allowed to have a bank," Bruce Crabb of Palm Bay, Fla., wrote in a March 19 e-mail to the FDIC. "It would bring banking into a new era. I'm sure they could keep down the cost, therefore making rates for loans less, and be able to pay higher interest on savings." Wal-Mart officials maintain the uproar is unfounded. The goal is not to set up a legion of Wal-Mart banks nationwide, but to save the retailer at least $5 million in annual bank costs by processing credit card, debit card and check transactions in-house, said John Kelly, Wal-Mart's financial services lobbyist in Washington. Banks charge Wal-Mart a "sponsorship fee" per transaction, which amounts to a fraction of a penny. But in the course of a month, the 140 million transactions Wal-Mart processes add up, Kelly said. "That's the only major reason we want to open up this bank," Kelly said. Wal-Mart already offers its customers debit cards, wire transfers, check cashing and money orders through other vendors, Kelly said. Last July, Wal-Mart applied for federal deposit insurance with the FDIC for a proposed industrial loan company in Utah. Industrial loan companies, or ILCs, are state-chartered, limited-purpose banks that are regulated by the FDIC. The FDIC, an independent federal agency that insures bank deposits, has scheduled public hearings on the Wal-Mart application in the Virginia suburbs of Washington on April 10 and 11 and in Overland Park, Kan., on April 25. The FDIC application represents a shift in Wal-Mart's strategy to enter the financial services arena. Previous efforts to buy banks in Oklahoma and California were stymied by federal and state legislation. FDIC spokesman David Barr said this was the first time that the agency has held a public hearing on a bank application. The more than 1,900 letters the agency has received on the matter is unprecedented, he said. "Most new bank applications don't generate any comments," Barr said. "If we receive half a dozen that would be considered a lot." About 60 ILCs operate nationwide, including one run by Wal-Mart competitor Target Corp., whose application was approved in 2004, Barr said. The hearings are the last step in the agency's consideration of the application, which also will include analysis of public comments, hearing testimony and Wal-Mart documents, Barr said. A typical application takes between 200 and 300 days, Barr said, adding the agency was not under a time constraint to reach its decision. If approved, Wal-Mart's industrial-loan bank would amount to nothing more than an 1,800-square-foot office operating out of the sixth floor of a downtown Salt Lake City office building and staffed by a handful of employees, Kelly said. He rejected claims that Wal-Mart would use the charter as an avenue into setting up branch banks in its stores. "You will never see a Wal-Mart bank in a Wal-Mart store," he said. First, the type of application the firm has submitted comes with restrictions that prevent the retailer from branch banking, Kelly said. "If we wanted to branch bank, we would have to go and reapply to the FDIC and the state of Utah to get the charter changed," he said. Secondly, 300 banks operate in 1,150 Wal-Mart stores, with 250 more independent branch banks committed to leasing space at Wal-Mart stores this year, Kelly said. Generally, the option to renew the lease comes up every five years and rests with the banks, not Wal-Mart, Kelly said. The pursuit of the FDIC application "is consistent with our model," he said. "It's pinching pennies at every step of the supply chain and passing the savings on to Wal-Mart customers." But opponents expressed doubt that Wal-Mart's entry into financial services would end there. "We are very skeptical that the business plan outline in their application is as far as they want to go," said Ron Ence, vice president of congressional relations at the Independent Community Bankers of America. "Their history suggests otherwise." Meanwhile, Arkansas bankers have remained silent on the issue. "I'd like to see if there are any loopholes that allow (Wal-Mart) to get into full-blown banking," said Ken Hammonds, president of the Arkansas Bankers Association in Little Rock, which represents about 165 Arkansas banks. "From what I've seen so far, it limits them," Hammonds said. "I don't see that much wrong with it as of right now." He said the association's board would wait until after the FDIC hearings to take a position on the issue. E-mail: avekshin@stephensmedia.com -- 30 -- |
