Wal-Mart ILC Controversy Compelling on Many Levels

Wal-Mart has been able to do something very difficult. In its quest to obtain an industrial loan company charter in Utah it has united disparate groups, some of which are bitter enemies. Case in point. At last week’s FDIC hearings on the Wal-Mart application, realtors and bankers teamed up to testify against Wal-Mart being extended FDIC insurance and an ILC charter. We all know how bankers and realtors have been scrapping on Capitol Hill over bankers getting deeper into real estate brokerage services. I am not a fan of Wal-Mart. Maybe I have watched too many specials about how Wal-Mart puts mom and pop stores out of business, squeezes suppliers, and doesn’t treat their employees so great, but I have a generally negative view of Wal-Mart. However, I think Wal-Mart is getting a raw deal on the ILC just because it’s Wal-Mart. A few years ago California purposely changed its ILC regulations to keep Wal-Mart from getting the charter in its state. Since when did regulating get so subjective? I don’t want to see Wal-Mart get into financial services any more than the bankers do. I think it could hurt credit unions, especially given that a number of credit unions have partnerships with Wal-Mart and run branches out of their stores. But the fact that Target, a Wal-Mart competitor, was granted an ILC and Wal-Mart may not simply because of its size smacks of subjective regulating. GE Capital, Merrill Lynch, and Pitney Bowes all have ILC charters as well. Wal-Mart also makes a good electronic financial transaction case. It claims that it wants the ILC in order to process in-house debit, credit and check transactions. Given the millions of transactions a day going through Wal-Mart, it stands to save a boatload of money from this. In the end wouldn’t this benefit the consumer? If the world’s largest retailer became more efficient couldn’t it pass that savings on to consumers? Not to mention Wal-Mart attracts low- to middle-income consumers who could use any breaks they can get. The bankers once again are out protecting their turf and their record profits. I am glad the credit union lobby has stayed out of this. Let the bankers continue to go to Capitol Hill to complain about realtors, Wal-Mart and credit unions – maybe they’ll soon be viewed as crying wolf. Another interesting nugget from the hearings was an FDIC official suggesting a “conditional” approval of Wal-Mart’s FDIC application. Essentially, the FDIC would require Wal-Mart to state that it would not get deeper into financial services and if it ever tried to it would undergo full review and public hearings. What? Again, seems very subjective and aren’t regulators supposed to be objective, as House Ways and Means Committee Chairman Bill Thomas warned NCUA, and enforce the regulations? Critics of any conditional approval point out that Wal-Mart has historically said one thing and done another in order to get regulatory approval. I am mocking this conditional approval because it’s essentially based on Wal-Mart promising not to do something. However, showing my bias, selfishly I would like to see that conditional flavor show up in the credit union industry in credit union-to-bank conversions. It would be just great if credit union CEOs and board members of CUs pursuing bank charters agreed to not pursue the next step of stock ownership and not personally benefit financially from the deal. That could be a “condition” of converting, but that’s not going to happen. The Wal-Mart case brings up the bigger picture of economic evolution. Again, I don’t want to see Wal-Mart get into banking, but banks and credit unions also weren’t happy to see other nonfinancial companies get into financial services, such as State Farm and other insurance providers getting thrift charters. Maybe we all have to face the economic evolution reality. If a State Farm or Wal-Mart can do it better than credit unions and banks, why not? At the end of the day isn’t it all about value for the consumer? Credit union CEOs often say after they merge with another CU that in the end it benefits the members. Credit unions have to be able to stand on their own two feet and compete with whoever comes along. It’s not all about pricing, where Wal-Mart can always beat competitors. Credit unions have to maintain excellent member service, provide any and all services members need and more importantly pound home the point that members are owners. Credit unions could stare down so many of the difficult issues facing the industry, such as conversions to banks and new competitors, if they were able to get across to members that they have ownership – they have a stake in the credit union’s success. Back to Wal-Mart, I think their evil plan is this -get the ILC charter, and at first happily abide by their public statement of only using it for EFT transactions. Maybe five or 10 years down the road when the hoopla has faded away, it will propose offering more financial services. The difference is the next time Wal-Mart comes back it will be armed with all sorts of data showing how its financial services can benefit consumers. It will profess lower fees, better rates, etc. to prove the value proposition. This time around it won’t be as meek as it has been with the ILC. Will credit unions be ready to show that they are already saving consumers millions like Wal-Mart will claim it can? -