House Slams Door on Wal-Mart in Banking Bill
The House of Representatives last week approved an ICBA-backed amendment that would prohibit Wal-Mart from using the industrial loan company (ILC) loophole to launch a nationwide banking network. The amendment, part of a Manager's Amendment adopted by voice vote, was attached to the Financial Services Regulatory Relief Act (HR 1375).
The amendment was sponsored by Barney Frank (D-MA), the ranking Democrat on the Financial Services Committee, and senior Republican Paul Gillmor (R-OH). It prohibits de novo interstate branching by ILCs that are owned by commercial firms (companies whose business is at least 85% non-financial), or that did not have deposit insurance before October 1, 2003. However, the bill will allow de novo interstate branching by banks, by ILCs owned by financial firms, and by ILCs owned by commercial firms prior to the grandfather date.
In a letter to House leaders, ICBA president and CEO Camden Fine said the bill as introduced would create "… a parallel, unregulated banking structure that overturns the Gramm-Leach-Bliley Act's prohibition against the mixing of banking and commerce. The Gillmor-Frank amendment is a good first step toward addressing those issues." Fine added that without the amendment, the bill would "… severely undermine the carefully constructed and balanced regulatory structure of the banking system."
Without the amendment, the bill would have allowed ILCs to de novo branch nationwide. Since ILCs are exempt from the Bank Holding Company Act, they can be owned by commercial firms, such as Wal-Mart. If Wal-Mart acquired an ILC, it could have used the new authority under this bill to open branches of its ILC in each of its retail stores. The Gillmor-Frank amendment will prevent that from happening.
The legislation also was amended to include language already cleared by the House permitting banks to pay interest on business checking accounts. This new power also would extend to ILCs. ICBA is strongly opposed to granting any new powers to ILCs as long as they are exempt from the BHCA and will fight to modify this provision in the Senate.
No companion legislation has been introduced in the Senate, so a timetable for Senate consideration is uncertain. The short legislative calendar in this election year also limits opportunity for Senate action.
ICBA is a founding member of the Sound Banking Coalition, which includes the National Grocers Association, the National Association of Convenience Stores, and the United Food and Commercial Workers International Union, all of which worked diligently on behalf of the Gillmor-Frank amendment and were instrumental in securing its passage.