BENTONVILLE, Ark. -- Wal-Mart said Friday that it has officially given up its quest to become a bank. A Wal-Mart Bank would have been a direct threat to convenience store businesses by forcing them to go to their biggest retail competitor for loans and other financial services, according to testimony given in April on behalf of the National Association of Convenience Stores (NACS) at a Federal Deposit Insurance Corp. (FDIC) public hearing.
We notified the FDIC today that Wal-Mart has withdrawn the application we made in July 2005 for an industrial loan [image-nocss] company (ILC) charter, Wal-Mart Financial Services president Jane Thompson said in a statement released Friday. This action follows January's FDIC decision to extend the moratorium on a number of pending ILC applications.
She continued, Unlike dozens of prior ILC applications, Wal-Mart's has been surrounded by manufactured controversy since it was submitted nearly two years ago. At no stage did we intend to use the ILC to establish branch banking operations as critics have suggestedwe simply sought to reduce credit and debit card transaction costs. Wal-Mart's financial services already save customers over $245 million a year so they can live better. Since the approval process is now likely to take years rather than months, we decided to withdraw our application to better focus on other ways to serve customers. We fully intend to continue to introduce new products and services that champion those who deserve convenient, lower priced financial services.
The move comes after months of heated debate over whether the world's largest retailer should be allowed to gain the added financial power of a federally insured bank, added the Associated Press.
The FDIC was considering Wal-Mart's application to establish an industrial loan corporation, which is a limited-purpose bank for processing credit card and other payments.
The news came a day after details came to light of leases that Wal-Mart recently signed with banks that operate branches in hundreds of its stores, reserving the company's right to offer an array of future financial services in its stores.
According to the lease terms, Wal-Mart can offer future services including mortgages, consumer loans, home equity loans, investment and insurance products and any other type of service or product that the company might develop.
The chairman of the FDIC, Sheila Bair, said the Bentonville, Ark.-based company's move to withdraw its application for a bank charter was "a wise choice. This decision will remove the controversy surrounding their intentions," Bair said in a statement. Wal-Mart does not need to have the sort of bank in question "to play an important role in expanding access to financial services by partnering with banks and others," Bair said. "We look forward to working with Wal-Mart in meeting the need for low-cost financial services across all populations."
Wal-Mart's application to establish an industrial loan corporation based in Utah had prompted a firestorm of opposition from banks, unions, lawmakers and consumer and community organizations. Last April, groups representing those interests argued against granting the retailer's request at two public hearings, the first ever held by the FDIC on such an application.
Douglas S. Kantor, speaking at that April hearing on behalf of NACS, said, If Wal-Mart gets into retail banking, it would effect a direct threat to NACS members. Wal-Mart's business practices and unparalleled size have already cost many local communities their small businesses and jobs. This threat would be magnified if local banks are run off, leaving Wal-Mart Bank as the local' source of capital for NACS membersin effect, forcing surviving local businesses to go to their biggest competitor, Wal-Mart, for deposits and loans. This would provide Wal-Mart with an even greater competitive advantage in both retail and banking, effectively restricting access to capital for NACS members and other local businesses, especially in smaller communities where, as a result of Wal-Mart's business tactics, there may be few banking alternatives for small retailers.
He added, Because Wal-Mart Bank would be owned by a competitor, the conflict of interest inherent in the commerce/banking mix could force local retailers to essentially provide their business plans to their competitionWal-Mart. The conflict of interest could also lead local retailers to change business plans, pricing structures and markets in order to secure financing. These changes might be required by the lender,' Wal-Mart, and thus inherently suspect, or they might be steps taken by the businesses in order to smooth the way to secure financing. Either way, it would be a distortion of the market and potentially very harmful to the economic vitality of the individual business and the community as a whole.
The United Food & Commercial Workers Union (UFCW)part of the Sound Banking Coalition with the Independent Community Bankers of America (ICBA), the National Grocers Association (NGA) and NACSsaid it is pleased that Wal-Mart has withdrawn its application for an ILC and hopes that federal and state lawmakers will now pass legislation that will prevent retailers like Wal-Mart from entering the banking business and jeopardizing the nation's economy.
"This is a big victory for consumers, communities, and working people," said UFCW International vice president and director of the UFCW Legislative & Political Action Department, Michael J. Wilson. "It's not everyday that Wal-Mart says 'uncle.' I think that they saw the controversy growing and felt tide turning against them and made the right decision to withdraw their application. But we can't let up the pressure. We still need Congress to close the loophole by enacting H.R. 698, the Gillmor-Frank legislation. When it comes to Wal-Mart, only the law can really protect us.
He added, "Local community banks and other financial institutions are critical to economic vitality and diversity. In recent years, Wal-Mart has destroyed local businesses and dismantled local economies. If Wal-Mart's bid for a bank had been successful, the company's economic control in these communities would have been almost complete."
The Sound Banking Coalition has fought Wal-Mart's bank bid because of its interference with the historical and necessary separation between banking and commerce, it said. A Wal-Mart-owned bank would have put a dangerous concentration of capital in the hands of one single company.
Click here to view all of the testimony at the FDIC public hearings on April 10, 11 and 25, 2006, in Arlington, Va.
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