Wal-Mart has been trying to break in to the banking business recently, but they suffered a blow yesterday. They have been trying to take advantage of a loophole in the law, called an Industrial Loan Corporation (ILC), which allows retailers and other nonbanking businesses to operate their own banks with very little oversight. Yesterday new legislation passed through the Senate Banking Committee that would close the ILC loophole. You can read more about the new legislation here.

Before the vote on the legislation, Wake Up Wal-Mart sent the following letter to the Senators on the Banking Committee, and we hope that the full Senate will close the ILC loophole.

On behalf of WakeUpWalMart.com and its 410,000 members across the country, I write today to encourage you and your colleagues to consider and adopt Senator Chris Dodd’s (D-CT) legislation to close the Industrial Loan Corporations (ILC) loophole.

As you know, the ILC loophole permits commercial entities to own and operate industrial bank companies with very little oversight. The mixing of banking and commerce and inadequate oversight threatens the banking system and the federal deposit insurance fund.

The intersection of banking and commerce is dangerous because when banks are owned by commercial entities, conflicts of interest can skew loan decisions, unfairly restricting access to capital.

The business practices of Wal-Mart are just those that give rise to concerns about conflicts of interest and unfair use of capital. At every turn, we have seen Wal-Mart, the world’s largest retailer, with more than $12 billion in profits in the past year, continually put its bottom line ahead of the safety and well-being of its customers.

In 2005, Wal-Mart applied to start an ILC. After significant controversy, Wal-Mart withdrew that application in March 2007, and has since moved into banking in Mexico. Until this loophole is closed, there is nothing to prevent Wal-Mart from applying again.

Wal-Mart’s history of putting profits ahead of American workers and consumers is not the type of corporation that has a place in the American banking industry.

Last week, Wal-Mart put out a press release touting its “economic stimulus plan for shoppers,” offering discounts on things “shoppers need” like Tostitos and big-screen televisions. To sweeten the deal, the retail giant enticed consumers to spend more than $250 on their Wal-Mart credit cards and get zero percent financing for 18 months – when the APR skyrockets to anywhere from 12 to 25 percent.

Chairman Dodd’s bill greatly reduces the threat posed by commercially-owned ILCs, places critical limitations on certain existing commercial ILCs, and will prohibit the creation of most new commercially-owned banks. We strongly encourage you to support Chairman Dodd’s legislation.

Thank you for your consideration.

Meghan H. Scott
WakeUpWalMart.com