Wal-Mart pulls part of bank bid

By Kristin Roberts

WASHINGTON (Reuters) – Wal-Mart on Thursday said it would
drop part of its application to open a bank, a move that could
ease some opposition in Congress to the bid by the world’s
largest retailer to start financial operations.

Wal-Mart told Reuters it would withdraw its proposed
exemption from the Community Reinvestment Act, a U.S. law that
places requirements on banks and savings institutions to help
meet credit needs of low- and moderate-income neighborhoods.

While Wal-Mart said its activities and investments already
support surrounding communities, and that it had been advised
its bank would be exempt from the law, the retailer has decided
to withdraw its proposed CRA exemption.

The company would not comment on its motivation for
withdrawing that proposed exemption, but industry and
legislative sources said the move could help Wal-Mart win more
support for its bank application from some of the Democrats
opposing it.

Wal-Mart has applied to open an industrial bank in Utah to
handle its electronic payments processing. The bank would not
offer processing services to other retailers, offer services to
the public or establish bank branches.

Still, its bid has generated intense and substantial
opposition from some on Capitol Hill, banks that fear competing
with the retail powerhouse and groups that regularly criticize
the company, such as environmental and labor groups.

Dozens of lawmakers, both Democrats and Republicans, have
asked the bank regulator considering Wal-Mart’s application to
reject it, or at least proceed with extreme caution.

On Thursday, 45 members of the U.S. House of
Representatives wrote to the regulator, the Federal Deposit
Insurance Corp., saying that due to Wal-Mart’s scope and
international dealings, financial problems within the company
might damage the bank and disrupt the U.S. payments system.

That letter follows others from the Hill that have raised a
variety of concerns ranging from whether Wal-Mart’s bank would
violate the historic separation in the United States between
banking and commerce and whether a Wal-Mart bank would drive
community banks out of business.

Other criticism has focused not so much on Wal-Mart as on
industrial loan companies overall.

Industrial banks are state-chartered and state-regulated,
and fall under the supervision of the Federal Deposit Insurance
Corp. (FDIC). Commercial companies may own them because federal
laws that bar non-financial companies from engaging in banking
activities do not classify industrial banks as banks.

But after the Federal Reserve raised concerns that
commercial owners of industrial banks escape a level of federal
bank supervision, those opposing Wal-Mart’s bid began
questioning whether that lack of full oversight could allow
troubles within the company to bleed into the bank’s business
and disrupt the payments system.

COMMUNITY REINVESTMENT ACT

In its application, Wal-Mart said its bank would be a
“special purpose bank” and would not be subject to the
Community Reinvestment Act, a law enacted in 1977 to encourage
banks and savings institutions to help meet the credit needs of
low- and moderate-income neighborhoods.

The law provides a framework for depository institutions
and community organizations to boost the availability of credit
and other banking services to underserved communities.
According to bank regulators, the law has led banks and thrifts
to open new branches, provide expanded services and adopt more
flexible underwriting standards.

“The CRA exemption was only one of several troubling parts
of Wal-Mart’s ILC application,” said Nu Wexler, a spokesman for
a group called Wal-Mart Watch, which is part of The Center for
Community & Corporate Ethics and its advocacy arm.

“This change does not address our concerns and our allies’
concerns about other critical issues — like the separation of
banking and commerce.”