Merger Watch: Walmart Seeks Utah ILC Charter
There is a one-year moratorium on ILC applications. The moratorium, unanimously passed by the FDIC Board of Directors on January 31, 2007, extends an earlier 6-month moratorium which ended in January. According to the FDIC press release, "The moratorium will provide Congress with an opportunity to address the issue legislatively while the FDIC considers how best to respond to any safety and soundness issues surrounding commercial ownership under existing law."
In March 2006, Wal-Mart applied for a Industrial Loan Company (ILC)* charter in the state of Utah with the Federal Insurance Deposit Corporation (FDIC). The debate surrounding Wal-mart's application centers on whether commerical companies should be allowed to own ILCs. See more info in the "Issues" section below. Other companies with ILCs include: General Electric Co., General Motors, Merrill Lynch & Co. Inc., Morgan Stanley, American Express Co. Target Corp, Nordstrom, Harley-Davidson, UnitedHealth Group, and Sallie Mae.
The FDIC has received hundreds of comment letters from banks, individuals, unions, advocacy groups, and other organizations. PDF's of the letters are avaibable for viewing on the FDIC website; a sample of the letters can be found below:
In addition to written comments, the FDIC also heard from the public at three public hearings in April 2006. Two were held in Virginia, the third in Kansas City. Written statements and hearing transcripts from the meetings are available here.
Issues of Concern:
Walmart is seeking to establish an Industrial Loan Company which would process credit card, debit card, and electronic check transactions. Walmart is requesting exemption from the Community Reinvestment Act (CRA) due to the non-depository nature of its proposed bank. The CRA states that depository banks have an affirmative obligation to meet the credit needs of all communities they serve, and is a way to hold banks accountable to communities. If exempt, Walmart's bank would operate with little to no accountability to meeting these credit needs. Walmart could also begin to offer deposit accounts throughout the country through an administrative process that requires neither a public comment period nor public hearings. According to the National Communuty Reinvestment Coalition, ILCs "promote questionable banking practices... are exempt from federal regulation, and have minimal CRA obligations despite their large size."
Walmart would almost certainly undercut local banks in terms of pricing and convenience. Over time, consumers would suffer from lack of choice and loss of specialized services and local investment that community banks can provide. Moreover, deposits made by residents locally would be siphoned out of their communities.
Finally, there are numerous lawsuits currently against Walmart for a host of labor and discrimination issues. These suits are a poor reflection on the management and values of the Walmart corporation and harbor bad practices by a proposed Wal-Mart bank.
* The FDIC defines industrial loan companies as follows:
ILCs are state chartered companies with broad banking powers that can operate with federal deposit insurance. Currently, there are 56 FDIC-insured ILCs, mostly headquartered in Utah and California. Five other states—Colorado, Minnesota, Indiana, Hawaii and Nevada—permit these charters. In existence since the early 1900's, ILCs are regulated by the chartering state regulator and by the FDIC. ILCs are not subject to the Bank Holding Company Act (BHCA) and Federal Reserve supervision, permitting a variety of financial and nonfinancial ILCs owners.