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FDIC Puts Retailers' Banking Plans on Hold

By Martin H. Bosworth
ConsumerAffairs.com

July 31, 2006

Wal-Mart • General Complaints • Auto Service & Lube • Black Friday • Customer Service • Dangerous Products, Conditions • Grocery/SuperCenters • Lawn & Garden • Monogram Credit Card Bank • Pet Department • Pharmacy • Photos • Pricing Disputes, Errors • Returns • Sporting Goods • Tire Centers • Vision Center • WalMart.com --- • Employees Complaints --- News • Wal-Mart Employees Going Checkless • Wal-Mart Dominates Christmas Shopping • California Consumers to Get $3 Refunds from Wal-Mart • Wal-Mart Selling Bassinets Blamed for Killing Two Babies • Wal-Mart Gaining On Grocery Chains • Black Friday Ads Target Wal-Mart • Wal-Mart Era Is Over, Wall Street Journal Declares • Consumers Respond to Toxic Wal-Mart Pet Toy Stories • Wal-Mart Expands $4 Generic Program • Lab Tests Find Lead, Other Toxins in Pet Toys Sold at Wal-Mart • Wal-Mart Plans Its Own Debit Card • Wal-Mart To Open In-Store Health Clinics • Wal-Mart Gives Up Bank Plans • Congressman Challenges Wal-Mart Banking Plans • Wal-Mart Expands Generic Drug Plan • Christmas Returns to Wal-Mart • Wal-Mart Jump-Starts the Holiday Shopping Season • Wal-Mart Cuts Generic Rx Prices To $4 In Florida • Wal-Mart Ending Its Layaway Program • FDIC Puts Retailers' Banking Plans on Hold • Wal-Mart/Sam's Club Settle with Connecticut on Pricing Violations • Congress May End Wal-Mart's Banking Dreams • Arizona Charges Wal-Mart, AutoZone with Consumer Fraud • Michigan Fines Wal-Mart $1.5 Million for Item Pricing Violations • Opposition Grows as FDIC Examines Wal-Mart Banking Bid • Wal-Mart's Banking Plans Draw Critics • Michigan Challenges Wal-Mart on Item Pricing • Wal-Mart May Stock "Emergency" Contraceptives • Black Friday Gives Wal-Mart a Black Eye • Connecticut Probes Wal-Mart Pricing • Wal-Mart Pushing Extended Warranties on Electronics • Bankers Oppose Wal-Mart's Entry into Banking • Wal-Mart Target Of Union-Led Boycott • Wal-Mart to Pay $14.5 Million for California Gun Law Violations • Wal-Mart Target Of Union-Led Boycott • Wal-Mart Tries to Buff Its Image

The Federal Deposit Insurance Corporation (FDIC) has imposed a six-month moratorium on the approval of new industrial loan corporations (ILCs), putting a temporary halt to the plans of big retail chains like Wal-Mart and Home Depot to create their own banks.

The moratorium prevents any companies from making changes in ILC ownership, or applying to the FDIC to charter an ILC.

The FDIC said it wants time to study the potential effects of retail companies owning their own banks, as well as allowing Congress time to prepare legislation that could codify the practice as law or bar it entirely.

"Recently, the growth of the ILC industry, the trend toward commercial company ownership of ILCs and the nature of some ILC business models have raised questions about the risks of ILCs to the deposit insurance fund, and whether their commercial relationships pose any safety and soundness risks," the FDIC said in the statement.

The moratorium went into effect immediately and applies to all current ILC applications as well as any potential future attempts. It expires January 31st, 2007.

The ILC system is favored by many large companies as a way to process retail payments without having to turn to third parties. ILCs operate under much less oversight than typical charter banks.

Consumer groups and local community banks oppose the idea of retailers using ILCs, as they fear that low-price stores like Wal-Mart might charge less for their banking services and run them out of business, as well as build banks right inside their storefronts.

Wal-Mart has said that it does not intend to incorporate any sort of bank into its stores, claiming that it goes out of its way to provide space on its properties to local banks.

Home Depot was also planning to establish its own ILC, having recently announced plans to purchase Utah-based "home improvement company" EnerBank. EnerBank has no physical branches and conducts all of its lending via phone transaction.

Federal Reserve chairman Ben Bernanke has called for ILCs to be brought fully under oversight of the Fed, and Congressman Barney Frank (D-MA) co-authored a bill that would prohibit the sale of ILCs to commercial entities, as well as putting them under the jurisdiction of the FDIC.

Frank hailed the FDIC's imposition of the moratorium.

"[The FDIC] has taken the right step in giving Congress the ability to consider the implications of the increasing efforts to use ILC charters to avoid the long-standing separation of banking and commerce," he said.

Opponents of Wal-Mart's banking plans fear that the company won't just drive local banks out of business, but may take advantage of its customers through predatory lending practices, and forcing shoppers and businesses to be reliant on the retail behemoth for loans.

An investigation by the New Rules Project, a collective organization representing small business and local community initatives, claimed that were Wal-Mart to shutter locations in small towns like Homer, LA, the resultant loss of jobs and tax revenue would seriously endanger the local economy.

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