ARLINGTON, Va. — Wal-Mart's possible entrance into the banking world has no shortage of opponents, but former Utah Sen. Jake Garn said he doesn't want the retail giant's controversial reputation to hurt the state's industrial banking industry.
"Don't attack the whole industry because you don't like Wal-Mart," Garn said at Monday's public hearing on Wal-Mart's application for an industrial loan bank in Utah, where Wal-Mart would handle the 140 million credit, debit card and electronic check payments it processes each year.
More than a dozen organizations testified against Wal-Mart's application before the Federal Deposit Insurance Corporation, which has never before held a public hearing on a bank application. The hearing continues today.
Many witnesses worried that if the government allowed Wal-Mart to begin banking, even in the limited terms outlined in its application, it would lead to a dangerous combination of commerce and banking by a company known for crushing competitors and driving out small businesses.
But Garn, speaking on behalf of the Utah Association of Financial Services, cautioned against such criticism and asked the hearing officers to keep in mind that they only need to examine the matter at hand.
"Let's not expand this beyond Wal-Mart's application," Garn said. He said if the company wanted to get into retail banking, which it has not applied for in Utah, it would still need an another approval from the state and the FDIC before it could move forward.
Garn said he asked Wal-Mart not to apply for the charter for fear some would use it to come out against industrial banks overall. It bothers him that opponents are blaming the whole industry for what Wal-Mart might do down the road or just out of opposition to the company for other policies.
"I wish they had never filed an application because they are causing exactly the trouble I thought they would," he said.
Utah has 33 industrial banks that hold more than $120 billion in assets, Garn said, noting the association neither supports nor opposes Wal-Mart's application.
"There is simply no evidence supporting the contentions made by the opponents of Wal-Mart's application that industrial banks violate long standing public policies, pose a risk to the banking system and the nation's economy, or that they are not adequately regulated by the FDIC," Garn said. "This is a clean, beneficial and successful industry that deserves to be left as is while the FDIC decides Wal-Mart's application on the merits of its specific plans."
At the hearing's opening, Wal-Mart Financial Services' Jane Thompson emphasized that the company has no plans to put its own bank branches in its stores and that it only wants the charter to process credit card and debit card transactions.
"You will not see a Wal-Mart branch in a Wal-Mart store," Thompson said. She said the company is "absolutely committed not to participate in branch banking."
But panel and after panel of banking organizations, community groups, labor unions and other organizations listed their reasons for opposing the application and urged the FDIC to reject it.
Most witnesses believed that if Utah and the FDIC approved the application, Wal-Mart would eventually move into other types of banking, regardless of what it says now. They point to the fact the company tried — and failed — retail banking in other states and top company officials have been quoted in the news media saying that mortgages or other financial services could be in the company's future.
Wal-Mart seeks to use a regulatory loophole that allows any type of company to own a certain sort of bank, known as an industrial loan corporation, or ILC, which would let it avoid the regulatory requirements that apply to corporate owners of other types of insured banks overseen by the Federal Reserve, regulators say.
General Motors, General Electric, Pitney Bowes, BMW and Harley-Davidson are among companies that now own ILCs under the exemption. Wal-Mart rival Target Corp. has one in Utah that it uses to issue credit cards for corporate customers.
"It appears to me that Wal-Mart is simply using the limited scope ILC application as an avenue to enter into the full fledged banking business," said Larry D. Maschhoff, president of Bank of Illinois.
He noted that the company's application includes offering short-term certificates of deposit to nonprofit, charitable and educational organizations, and to individual investors.
"This is much different than their press releases indicating they are only interested in performing payment processing for their own stores and subsidiaries," Maschhoff said. "The deposit gathering function will be detrimental to all financial institutions and to all of their competitors."
Other opponents told the FDIC, which insures bank deposits against a bank's failure, said Wal-Mart's size could put the nation's financial system at risk.
"Given Wal-Mart's massive scope and international dealings, it is not possible to rule out a financial crisis within the company that could damage the bank and severely disrupt the flow of payments throughout the financial system," said Rep. Stephanie Tubbs Jones, D-Ohio, who heads a group of lawmakers opposed to the company's application. "The potential losses to the FDIC are staggering. Our country is extremely fortunate that Enron and WorldCom did not own banks."
Michael Wilson, who spoke on behalf of the United Food and Commercial Workers International Union, said he believes if the Wal-Mart gets the application approved it would change it down the line.
"I think at some future date, at some future time, they will seek to amend that." Wilson "Wal-Mart doesn't do anything in a small way."
Even if it did not go into retail banking, Terry Jorde, president and CEO of CountryBankUSA in Cando, N.D., and chairman of the Independent Community Bankers of America, said the affect on the payment system alone is reason enough to deny the application.
"A Wal-Mart bank would provide Wal-Mart with the capability to exert extraordinary influence on the payment system and would pose significant settlement and security risks to the participants in the system given Wal-Mart's dominant role in the global economy," Jorde said. "Without adequate oversight of the parent company, what would prevent Wal-Mart from requiring its suppliers to use its bank as a condition of doing business?"
Not all witnesses opposed the application.
"This application will allow Wal-Mart to save on transaction costs and pass on savings to workers and customers," according to testimony from Catherine Smith, of the National Steering Committee of Working Families for Wal-Mart. "Why preclude them from that? Why deny Wal-Mart's more than 100 million customers per week the power to stretch their dollars and buy the goods they need?"
The Salvation Army and the National Center for Missing and Exploited Children spoke in favor of Wal-Mart, highlighting its charitable contributions and work within local communities.
Wal-Mart applied to the Utah Department of Financial Institutions to establish an industrial bank, but the department has not accepted the application for review yet.
Deputy Utah Commissioner Paul Allred attended Monday's hearing. He said he heard what he expected and that people have a lot of strong opinions about the issue.
Contributing: Associated Press
E-mail: suzanne@desnews.com