Mark Wilson  /  Getty Images file
Tomika Mason takes part in a protest in Washington DC last month. Wal-Mart is attempting to move beyond retail and get into the financial industry.
updated 4/10/2006 7:16:32 PM ET 2006-04-10T23:16:32

Allies for once, a stream of officials from the banking industry, unions and consumer groups urged federal regulators on Monday to reject a bid by Wal-Mart Stores Inc. to expand its empire into the banking business.

A company official, meanwhile, assured the Federal Deposit Insurance Corp. that Wal-Mart had no plans to compete with community banks, including bank branches located within its megastores.

The first day of the first-ever FDIC public hearings on a bank application drew a wave of opposition to the plans of the world’s largest retailer. Among the protesters: officials of trade groups representing banks of every type and size; unions; lawmakers; consumer and community organizations, and associations of convenience stores, grocers, retailers, real estate agents and farmers.

Wal-Mart’s bid for federal deposit insurance for a state-chartered bank in Utah — which would handle the 140 million credit, debit card and electronic check payments the company processes each year — is just the camel’s nose under the tent flap, the critics said. It would be counter to the company’s nature to refrain from expanding into full-scale banking with retail branches that would destroy local banks.

The lone Wal-Mart executive who testified — Jane Thompson, president of Wal-Mart Financial Services — insisted that the $250 billion-a-year retailer is a good corporate citizen in the communities where it operates, pays its employees fair wages and complies strictly with laws and regulations.

The company insists that consumers and retail banks have nothing to fear and is pledging to stay out of branch banking and consumer lending. Some 300 institutions operate branches in 1,150 Wal-Mart stores and the company says it doesn’t want to compete with them.

“Wal-Mart is absolutely and unequivocally committed not to engage in branch banking,” Thompson told FDIC Chief Operating Officer John F. Bovenzi and two other agency officials, seated at a dais in an auditorium before some 70 people.

The regulators probed with questions but gave no indication of a position on Wal-Mart’s bid.

“In fact and in practice, Wal-Mart is clearly committed to supporting community banking, not undermining it,” Thompson said.

She said the parent company would buttress the new bank “and will formally commit to protecting the bank against loss and maintaining its capital.”

Bentonville, Ark.-based Wal-Mart already is too big, opponents say, with 3,900 stores nearly saturating the U.S. market and unrivaled dominance — accounting for an estimated 10 percent of the U.S. retail economy. That means a Wal-Mart bank could pose a risk to the country’s financial system, and potentially to taxpayers, they say.

“Given Wal-Mart’s massive scope and international dealings, it is not possible to rule out a financial crisis within the company that could damage the bank and severely disrupt the flow of payments throughout the financial system,” said Rep. Stephanie Tubbs Jones, D-Ohio, who heads a group of lawmakers opposed to the company’s application. “The potential losses to the FDIC are staggering. Our country is extremely fortunate that Enron and WorldCom did not own banks.”

A few witnesses spoke in Wal-Mart’s favor: officials of the American Financial Services Association, which represents credit card issuers and other consumer lenders, and the Salvation Army and the National Center for Missing and Exploited Children.

Supporters say a move by Wal-Mart into banking would benefit consumers by lowering fees and prices in an industry needing more vigorous competition.

Nearly 70 witnesses are testifying, both for and against Wal-Mart’s application, in FDIC hearings on Monday and Tuesday in Arlington, Va., and on April 25 in Overland Park, Kan. The agency has not set a deadline for a decision.

An unprecedented outpouring of 1,900 comment letters to the FDIC, most opposed to the application, prompted the agency to hold the hearings.

Over the past five years, Wal-Mart has tried unsuccessfully to buy financial institutions in California and Oklahoma and to partner with a bank in Canada. The California legislature, Congress and regulators blocked those deals over worries about big retailers getting into banking without full bank supervision.

This time, Wal-Mart is seeking to use a regulatory loophole that allows any type of company to own a certain sort of bank, known as an industrial loan corporation, or ILC.

When the exemption was adopted in 1987, ILCs were mostly small, locally owned institutions that had only limited deposit-taking and lending powers. Since then, they have grown astronomically, to some $140 billion in assets in 2004, regulators say.

General Motors, General Electric, Pitney Bowes, BMW and Harley-Davidson are among companies that now own ILCs under the exemption. Wal-Mart rival Target Corp. has one in Utah that it uses to issue credit cards for corporate customers.

The exemption lets the corporate owners of ILCs avoid the regulatory requirements that apply to corporate owners of other types of insured banks overseen by the Federal Reserve, regulators say. Both Alan Greenspan, who retired as Fed chairman at the end of January, and the current head of the central bank, Ben Bernanke, have urged Congress to close the loophole.

By handling its own payment processing, Wal-Mart would save the fraction of a penny per transaction it currently pays two large banks for the service — adding up to millions of dollars a year.

Wal-Mart spokesman Marty Heires said Monday that amount would likely grow in coming years as more customers switch to credit and debit cards from cash and as the number of Wal-Mart stores also grows.

© 2012 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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