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.
