Wal-Mart bank application probed

Public hearings into Wal-Mart’s proposed application for a US banking licence have begun in Virginia.

Its plan for an in-house bank known as an industrial loan corporation (ILC) is opposed by unions, consumer groups and many state-level banks.

They believe the move will threaten local businesses although Wal-Mart says it has no plans to open branches or offer banking services to consumers.

These are the first public hearings by federal regulators into such a request.

About 70 witnesses will give evidence in Virginia and at a second hearing in Kansas later this month.

Wal-Mart revealed in July that it would apply to the Federal Deposit Insurance Corporation (FDIC) – the watchdog which oversees and guarantees US banks and savings institutions – for a licence for a state-chartered bank in Utah.

The FDIC decided to hold hearings after it received more than 1,900 letters about the application.

Wal-Mart says the bank will process in-store credit and debit card payments at its 3,900 outlets and that it has no wish to compete directly with High Street banks, many of which operate ATMs in its stores.

“In fact and in practice, Wal-Mart is clearly committed to supporting community banking, not undermining it,” Jane Thompson, the firm’s president of financial services, told the hearings.

But critics are concerned that a Wal-Mart bank will, over time, expand into other areas, competing directly with other banks.

Opponents of the move point to Wal-Mart’s dominance of the US retail sector and its drive into other sectors such as healthcare.

“Wal-Mart is a company that does not play by the rules,” said Robert McGarrah, an official with the AFL-CIO union, in a statement prepared for Monday’s hearing.

“Wal-Mart’s record in communities across America reveals a company that ruthlessly wipes out important community businesses,” he added.

However, Wal-Mart’s application has its supporters, including the American Financial Services Association.

The industry body, which represents credit card issuers, argues Wal-Mart’s move will bring much-needed competition and could help to lower credit card charges.

Previous efforts by Wal-Mart to move into banking, either through acquisition or partnership, have been thwarted by regulators.

It is trying to take advantage of a 20-year legal loophole which allows any company to operate an ILC in California, Utah and Nevada.

Owners of ILCs are not bound by some regulations applying to other insured banks, overseen by the Federal Reserve.

ILCs hold more than $140bn in assets and General Motors, GE and BMW are among those companies to have set up such businesses.