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Congressman Challenges Wal-Mart Banking Plans

By Martin H. Bosworth
ConsumerAffairs.com

March 15, 2007

Wal-Mart • General Complaints • 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 & Lube • Vision Center • WalMart.com --- • Employees Complaints --- News • 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

Wal-Mart is taking heat from Congress over its attempts to create banking centers in its stores. Rep. Paul Gillmor (D-Ohio) said the retail giant is pressing ahead with its banking plans despite objections from Congress, consumer activists and local banks.

Convening a press conference, Gillmor claimed to have e-mails from Wal-Mart executive Larry Ellis stating that it was planning to renegotiate leases with banks which had offices in Wal-Mart stores or shopping centers. Ellis wrote that Wal-Mart was reserving the right to offer financial services such as mortgage and home equity loans in its centers.

The Wall Street Journal separately confirmed that Wal-Mart had been quietly renegotiating its leases with banking tenants to offer its own financial products, such as debit cards and insurance programs, at checkout lines and customer service desks.

Gillmor claimed this indicated that Wal-Mart was being deceptive regarding its banking plans. Wal-Mart representatives denied that anything was unusual in their negotiations, saying that similar language had been in their leases for at least five years.

Gillmor remains unconvinced.

"If they were not going to go into full-service banking, why in the world would they do that? There is no other reason," he told The New York Times."They want to be prepared in case they get their way."

Gillmor, along with Rep. Barney Frank (D-MA), authored legislation designed to prevent commercial entities such as Wal-Mart from purchasing industrial loan corporations (ILCs), financial entities similar to banks but with fewer safeguards and less oversight. Gillmor and Frank's bill would also put ILCs under greater control of the Federal Deposit Insurance Corporation (FDIC).

The FDIC voted earlier this year to extend a freeze it had imposed on the purchase of ILCs while it examined the issue. The House Financial Service Committee, of which Gillmor and Frank are both members, has scheduled hearings next week to discuss new legislation for purchasing ILCs.

Although ILCs have been bought or chartered by corporations such as Harley-Davidson and Pitney Bowes, Wal-Mart's plans have given consumer groups and representatives of the community banking and credit union industry cause for concern. The retail behemoth's dominance would give it enough market power to offer financial products to customers at far lower rates than competitors, and could eventually drive local banks and credit unions out of business.

A July 2006 report by the Government Accountability Office found that industrial banks could charge interest rates at the maximum level allowable in their home state, similar to credit card interest rates being based in lender-friendly states such as South Dakota and Delaware.

The GAO warned that commercial entities purchasing industrial banks might reduce available financial options to consumers.

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