Facing off over a Bank of Wal-Mart

Retailer's detractors, small banks decry its bid to open limited operation

critics of banking fees like idea


Citizens Tri-County Bank tellers and managers, riled by the idea that Wal-Mart Stores Inc. wants to open a banking operation, started a letter-writing campaign a few weeks ago to the Federal Deposit Insurance Corp.

Wal-Mart has driven small businesses out of their rural area near Chattanooga, Tenn., Chief Executive Officer Glenn Barker explained, and they fear a similar fate for community banks like theirs.

But when Jack Pansegrau in Palm Springs, Calif., heard about the dust-up over Wal-Mart in banking, he sided with the world's largest retailer. Maybe the company that has saved Americans "billions and billions" could drive down fees for use of automated teller machines and other bank charges, he wrote.

Such letters have been arriving since last summer and now number nearly 2,000 - the largest-ever response to a bank application at the FDIC.

Wal-Mart must secure approval from the agency and from regulators in Utah to open a limited-purpose bank in that state, from where it could provide service nationwide.

The giant retailer has said it merely wants to process its own credit and debit transactions, but opponents fear the company is setting itself up to expand further into retail banking.

The debate also has landed in the Maryland General Assembly, which made national headlines this winter as the first state legislature to force Wal-Mart to spend more on health insurance for its workers.

Maryland lawmakers recently introduced legislation that would prevent the retailer from opening its own bank branches in stores in the state. With days left in this legislative session, however, prospects for the bill's passage this year are uncertain.

"There are pros and cons to this because Wal-Mart does offer low prices, but I think people feel at what cost?" said Edna Bonacich, a professor at the University of California in Riverside and contributor to the book, Wal-Mart: The Face of 21st Century Capitalism.

"So it depends on how they get into banking," Bonacich said. "If they behave as they have, with ruthless competitive practices, they're going to make more enemies."

Emotions over the normally arcane realm of banking regulation are running high and reflect the reasons why Wal-Mart is simultaneously reviled and adored.

While the retailer delivers "every day low prices" for groceries, clothes, hardware and other products, it does so by using its clout with vendors to secure better deals and ends up far undercutting competitors, including mom-and-pop businesses.

As the world's largest employer, Wal-Mart also has been criticized by unions who contend it doesn't pay enough in wages and benefits and has shown a pattern of racial and gender discrimination.

In Washington Thursday, the issue drew protesters to the White House holding signs that read, "Don't Bank on Wal-Mart."

Among those opposing a Wal-Mart bank are 45 members of Congress who signed a letter saying the company's entry into banking would pose too many risks, including the possibility that a financial crisis at the company would wreak havoc on the nation's payment system.

Supporters of Wal-Mart's proposal include the American Financial Services Association, a trade group in Washington that says the company would bring more consumer choice and healthy competition to banking.

Allies and foes will square off at hearings on the FDIC application next month in Arlington, Va., and Overland Park, Kan.

The FDIC hasn't set a timetable for when it would act on the proposal.

Utah regulators, meanwhile, have told Wal-Mart that it must address certain concerns before they will accept its application, at which time the process for review usually takes three months.

Wal-Mart has tried - unsuccessfully - to get into the banking business three times since 1999. Separate attempts to buy an Oklahoma savings bank, partner with a bank in Canada and buy an industrial loan company in California were thwarted by state and federal regulators.

This time is different, Wal-Mart officials say, because they are proposing to start an industrial loan company with a winnowed business plan that would keep the company out of traditional banking services.

The retailer now leases space to regional and community banks, primarily in its so-called "super- centers." So far, about 1,150 branches have opened, and agreements have been struck to open another 250.

Wal-Mart says its industrial bank would process debit, credit and electronic check payments, which is done now by third-party banks for a fraction of a penny per transaction. The savings would be passed on to customers, the Bentonville, Ark., company says, and the amount could be substantial when multiplied over the hundreds of millions of transactions at Wal-Mart stores each year.

In addition, Wal-Mart wants to offer certificates of deposits to nonprofit groups and charities and to individuals through brokers. CDs are interest-bearing investments that typically require money to be deposited for a period of years and are subject to penalty if withdrawn early.

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