House votes to bar store-owned banks

Bill stems from bid by Wal-Mart, others

May 22, 2007|By Marilyn Geewax | Marilyn Geewax,Cox News Service

WASHINGTON -- The House easily passed legislation yesterday blocking retailers such as Wal-Mart Stores Inc. and Home Depot Inc. from establishing their own banks.

Republican Rep. Paul E. Gillmor said he sponsored the bipartisan bill to close "the last loophole" allowing commercial companies to own a type of bank known as an industrial loan company, or ILC.

Chartering such banks permits companies "to make an end-run around the bank laws" that otherwise would impose tight regulations, the Ohio congressman said on the House floor.

Despite the lopsided 371-to-16 vote in the House, the Industrial Bank Holding Company Act of 2007 faces an uncertain future in the Senate, where Sen. Robert F. Bennett, a Utah Republican, is expected to vigorously oppose it. Most industrial loan companies are chartered in Utah.

Supporters of the banks say many consumers would benefit from getting limited banking services from commercial companies. For example, Home Depot, the Atlanta home-improvement chain, wants to acquire an industrial loan company to help homeowners get loans for remodeling projects.

But in January the Federal Deposit Insurance Corp., which oversees state-chartered industrial loan companies, extended a moratorium on applications for one year to give Congress time to act.

Home Depot spokesman Anthony Wilbert said that after waiting out the moratorium, the company plans to move forward with its long-planned acquisition of EnerBank USA, an existing ILC.

Home Depot argues that it applied for FDIC approval more than a year before Congress took up the legislation and therefore deserves to be "grandfathered" in under existing laws.

Rep. David Scott, the Georgia Democrat whose district includes Home Depot's headquarters, said in an interview that he decided to support the bill, but only with the understanding that its final version would have a provision making Home Depot's plans possible.

Scott said he has been working with Rep. Barney Frank, the Massachusetts Democrat who chairs the House Financial Services Committee, to make sure that "he is aware of our concerns."

If the Senate were to pass ILC legislation, Frank would be on a conference committee to smooth out any differences between the House and Senate versions to produce a final bill.

During such negotiations, a provision would be added to allow commercial companies to operate the banks with "a narrow scope that will only deal with small consumer loans," Scott said.

That was Congress' original intent in 1987 when it allowed commercial companies to own industrial loan companies. The goal was to help low-income workers get small loans.

Such banks attracted little attention until recent years, when more and more major companies began seeking charters to do bigger and more elaborate lending. Today, 58 U.S. companies, including General Motors Corp., Target Corp. and American Express Co., operate industrial loan companies.

The growth of industrial loan companies became extremely controversial in 2005 when Wal-Mart applied for a charter. Union activists and community bankers launched a campaign to keep the world's largest retailer out of banking, saying its scale would crush independent banks.

Bowing to political pressure in March, Wal-Mart withdrew its application. Nevertheless, the House wants to prevent industrial loan companies from proliferating.

"We're doing this to get ahead of the problem," Frank said on the House floor. "If we don't act, we will see some problems."

Stephen J. Verdier, director of congressional relations for the Independent Community Bankers of America, said his trade group is "very pleased with the vote" and that it sends a strong signal to the Senate that it's important for it to take up the measure.

Baltimore Sun Articles
Please note the green-lined linked article text has been applied commercially without any involvement from our newsroom editors, reporters or any other editorial staff.