Wal-Mart Entry into Banking Could Come in Utah

Wal-Mart Entry into Banking Could Come in Utah

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SALT LAKE CITY (AP) -- News that retail giant Wal-Mart is poised to enter the banking business in Utah remained in the realm of rumor Tuesday despite newspaper and banking industry magazine reports that say the move is imminent.

Arkansas-based Wal-Mart could become a financial institution under an industrial loan company charter, but to date the company has not applied for a charter from the state of Utah, the executive director of the state's Department of Financial Institutions said.

"I have confirmed that now we don't have an application," G. Edward Leary said, adding that he could not say if the state had even a preliminary conversation with Wal-Mart officials about a charter application.

An industrial loan company charter, or ILC, allows commercial entities -- often financial services companies and automobile manufacturers -- to provide some financial services such as loans and credit.

Under an ILC charter, a retail company could process some financial transactions, like debit card purchases, internally.

Wal-Mart could "operate like almost any other community bank," offering most financial services with the exception of a checking account, Leary said.

About 60 companies nationwide operate as ILCs and hold charters; 29 of those are in Utah and have assets amounting to more than $115 billion, Leary said.

Federal law prohibits commercial entities from also owning banks. However, Utah is one of five states exempted from some 1980s federal banking regulations, allowing the state to offer ILC charters.

Stories published over the past week in a Salt Lake newspaper and in the nationally circulated American Banker both said a charter application from Wal-Mart is on the horizon.

Wal-Mart would not discuss its future plans.

"It has been widely reported. We have not confirmed anything yet," Wal-Mart spokesman Marty Heires said Tuesday.

He said the company policy is to not comment on what Wal-Mart may or may not do in the future. But he said the company is not varying from its policy to have other banks set up shop within Wal-Mart stores.

"We're not interested in operating branch banks. Our strategy has been to invite third parties to operate in our stores," Heires said.

Still, some Wal-Mart stores give the appearance of dabbling in banking. Last year, 16 Wal-Mart Money Centers were opened in stores in Georgia and Tennessee. The branches are owned and operated by National Commerce Financial Corp, and offer such services as payroll check cashing, money transfers and money order sales.

Should Wal-Mart submit a charter application, an approval would take about six months, Leary said. State officials then keep a close watch on the company charter -- and the company business plan -- for the next three years.

It's a change in that business plan that most concerns the Independent Community Bankers of America, which fears that Wal-Mart could undercut other community financial institutions and banking consumers.

"It has been represented that Wal-Mart does not intend to branch and that they really want this charter to perform backroom banking operational functions, but there's nothing legally to stop their business plans from changing," said Camden Fine, ICBA president.

Already a huge retail powerhouse, Wal-Mart could flex some of its muscle in the banking world to squeeze out smaller entities, Fine said. He also fears that because the oversight of ILC charter companies differs from banks and other financial institutions, a risky parallel banking system could be created.

"I think it hurts our diverse financial systems and I think it limits consumer choice when you have one or two entities or firms dominating the financial landscape," Fine said.

(Copyright 2005 by The Associated Press. All Rights Reserved.)

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