Wal-Mart has suffered a setback in its attempt to open an industrial loan company (ILC), as the US House of Representatives has introduced a bill aimed at keeping commercial companies out of the financial services industry.
The bill, introduced by Ohio Republican Paul Gillmor and Massachusetts Democrat Barney Frank, would prohibit a US bank regulator, the Federal Deposit Insurance Corporation (FDIC), from granting charters to companies who earn less than 85% of their income from financial activities.
This would effectively block companies such as Wal-Mart from starting their own banking operations.
Wal-Mart has applied for an industrial loan charter, which would enable the retailer to open a bank with limited operations. The Bentonville-based firm is keen to cut costs by creating an ILC in Utah.
The ILC would handle Wal-Mart’s credit and debit card transactions, saving the company the processing fees it currently pays to a third party. ILC’s cannot offer accounts, but can make loans.
ILC’s have become popular in recent years as US commercial companies can use them to enter the financial services industry, offering credit and loans to customers.
Target, Wal-Mart’s rival, already has one and Home Depot has filed an application. Consumer groups and banks are concerned that ILC’s are not regulated in the same way and could therefore pose a risk to the banking system.