WASHINGTON — While Congress continues to debate legislation to stop Wal-Mart Stores Inc. and other commercial companies from owning industrial loan companies, momentum is building around state efforts to curb their branching powers.
With industry prodding, lawmakers in at least five states - Texas, Colorado, Kansas, Nebraska, and Maine - are considering bills that would prohibit commercially owned ILCs from opening branches there. This comes after a surge of state action last year, when five other states enacted similar laws.
State banking groups said they do not want to wait for action by Congress or the Federal Deposit Insurance Corp., which has temporarily frozen ILC charter approvals.
"We know how things work in Washington, and how long things can take," said Chuck Stones, the president of the Kansas Bankers Association, which is supporting a bill that was introduced Wednesday.
Robert Hallstrom, the general counsel of the Nebraska Bankers Association, said that, "until such time as action is taken on the federal level, we will want to be poised to make sure that we have in-state law protections against the ability of industrial loan companies that mix banking and commerce to establish branches within our state borders."
The state group is supporting a bill that was introduced Jan. 8.
Steve Scurlock, the executive vice president of the Independent Bankers Association of Texas, said he continues to hope Congress will act, however. "We would be thrilled if Congress would pass an additional ban on ILC branching," he said. "The issue is, we want to make absolutely sure that we're covering all of our bases."
Additional state groups are also planning action. Daryll Lund, the president and chief executive of the Community Bankers of Wisconsin, said he is "hopeful" that a legislative proposal will be offered "within one or two months" to explicitly bar ILC branches on the premises of a commercial affiliate.
State groups succeeded last year in helping to pass bills in Iowa, Maryland, Missouri, Oklahoma, and Virginia. But questions remain about whether some of these measures run afoul of the 1994 Riegle-Neal Act. Federal regulators warned in July that, since a state's branching policy must apply equally to all types of banks, states banning ILC branching may unwittingly ban branching for all insured institutions.
Some states have tried to get around the problem, however, by prohibiting any bank from opening a branch on the premises of a commercial affiliate.
Virginia is now considering a bill that would amend last year's law to replace the reference to "industrial loan company" with "bank." The bill essentially would ban any out-of-state bank from installing branches on the grounds of an affiliate that engages in commercial activities.
The states' moves came as Rep. Barney Frank, the chairman of the House Financial Services Committee, and Rep. Paul Gillmor, R-Ohio, were expected to reintroduce a bill to ban any ILC ownership by commercial companies. The bill has significant support in the House but could face an uphill battle in the Senate, where Sen. Bob Bennett, R-Utah, has said he opposes efforts to curb the ILC charter.
The issue was rekindled after Wal-Mart applied for a Utah ILC charter in July 2005, saying it wanted an in-house processor for store payments. Bankers have said that they fear the plan masks Wal-Mart's intention to use an ILC to open retail branches in its stores nationwide - an assertion the company has adamantly denied.
A Wal-Mart spokesman repeated the company's stance that it is "not interested in opening a consumer bank," adding that the application "is for an industrial bank that supports credit and debit card transactions, saving Wal-Mart the related fees on such transactions."
The Federal Deposit Insurance Corp. has frozen 10 pending ILC applications, including Wal-Mart's and one from Home Depot Inc., until Jan. 31. Federal lawmakers are pressing the agency to extend the moratorium.
"What's happening in the states is actually helping to propel some of the momentum in Washington," said Karen Thomas, the director of government relations for the Independent Community Bankers of America.
