US House of Representatives lawmakers this week will propose restricting ownership of banks by commercial companies in a legislative push to derail the efforts of retailing giants to move into financial services.
The aim of the new bill is to deliver a loud, clear message to the banking regulator now reviewing applications by Wal-Mart Stores Inc and Home Depot Inc to buy or form industrial loan companies (ILCs), according to financial lobbyists.
"Expressions of concern by the Congress are frequently useful as regulatory agencies consider whether they're going to approve," said Floyd Stoner, executive director of the American Bankers Association trade group.
Those concerns will be expressed in proposed legislation next week and at a Wednesday hearing planned by a House of Representatives Financial Services subcommittee.
ILCs have been around since the early 1990s and are chartered by only a few states, most notably Utah, and regulated by the Federal Deposit Insurance Corp (FDIC).
Wal-Mart wants to open an ILC to process electronic payments from its stores involving credit and debit card transactions, potentially saving it millions of dollars each year.
Home Depot has said its ILC would provide loans for consumers for home improvements.
Both applications face opposition from consumer groups and banks who fear the companies could eventually provide other retail banking services.
The FDIC has given no indication of when it will act on the applications.
CLOSING THE "LOOPHOLE":
US laws historically have sought to separate commerce and banking activities to avoid placing the federal deposit insurance fund - which currently amounts to $49 billion - at risk if the bank fails. However, an exception now on the books allows commercial firms to own an ILC.
"We'll be introducing legislation to close the ILC loophole," said Steve Adamske, spokesman for Massachusetts Rep. Barney Frank, the top Democrat on the House committee.
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