Ohio Rep. to Reveal Secret -- Wal-Mart Wants a Bank

Today's New York Times reports that Rep. Paul Gillmor (R-OH) is planning to release information which reveals Wal-Mart has a grand plan to begin providing financial services to the public. Well, kinda sorta. What he has is a copy of undated email which suggests that Wal-Mart was revising leases with tenants that are banks to reserve the right to offer financial services itself.

In an interview last night, Mr. Gillmor said the Wal-Mart was including a clause in some tenant leases that would allow the company to some day expand its banking operations. Wal-Mart currently offers branded credit cards, check cashing and other services through partnerships with financials [sic] institutions.

The retailer claims that nothing nefarious is going on.

A Wal-Mart spokeswoman confirmed last night that the company had updated some of its tenant leases late last year to include the language in question but implied that it had been an option all along.

“There is nothing new here,” the spokeswoman, Mona Williams, said. “While we recently updated language in our leases, similar language has been in our agreements for at least five years.”

Gillmor's bombshell comes before next week's hearings before the House Financial Services Committee on the subject of corporate ownership of Industrial Loan Corporations. Emoolaw reported on those hearings earlier this week. Unfortunately, there's still no witness list posted on the committee's web page, so we don't know what exactly what subjects those hearings will cover.

There are valid safety and soundness reasons for keeping general commercial firms out of the business of banking. But dozens of big corporations already own ILCs and have been approved for FDIC insurance. There are perfectly legitimate reasons for a retailer like Wal-Mart to want to own an FDIC insured ILC -- most notably, the ability to "acquire" credit card transactions on its own. Retailers currently pay banks a hefty fee for access to the credit card networks, even though the bank often just turns the business over to a processor. By being its own bank, a retailer can significantly reduce the cost of accepting credit cards. It's unclear to me why Wal-Mart should be denied that business opportunity while many other big corporations get direct access to this important payment mechanism.

The hearings next week should focus on the legal and economic issues and avoid the drama of psuedo-spectacular revelations like Gillmor's email. The policy discussion here should be about access to payment systems, supervision of financial institutions and the modern definition of "the business of banking." Let's hope that House members can avoid the "Is Wal-Mart Good or Evil" debate.