The House easily passed legislation on Tuesday blocking retailers such as Wal-Mart Stores Inc. and The Home Depot Inc. from establishing their own banks.
Rep. Paul Gillmor (R-Ohio) said he sponsored the bipartisan bill to close “the last loophole” allowing commercial companies to own a type of bank known as an industrial loan company, or ILC.
Chartering such banks permits companies “to make an end run around the bank laws” that otherwise would impose tight regulations, Gillmor said on the House floor.
Despite the lopsided 371-16 vote in the House, the Industrial Bank Holding Company Act of 2007 faces an uncertain future in the Senate, where Robert Bennett (R-Utah) is expected to vigorously oppose it. Most ILCs are chartered in Utah.
Supporters of ILCs say many consumers would benefit from getting limited banking services from commercial companies. For example, Home Depot, the Atlanta-based home-improvement company, wants to acquire an ILC to help homeowners get loans for remodeling projects.
But in January, the Federal Deposit Insurance Corp., which oversees state-chartered ILCs, extended a moratorium on applications for one year to give Congress time to act.
Home Depot spokesman Anthony Wilbert said that after waiting out the moratorium, the company plans to move forward with its long-planned acquisition of EnerBank USA, an existing ILC. Home Depot argues that it applied for FDIC approval more than a year before Congress took up the legislation and therefore deserves to be “grandfathered” in under existing laws.
Rep. David Scott (D-Ga.), whose district includes Home Depot’s headquarters, said in an interview that he decided to support the ILC bill, but only with the understanding that its final version would have a provision making Home Depot’s plans possible.
Scott said he has been working with Rep. Barney Frank (D-Mass.), chairman of the House Financial Services Committee, to make sure that “he is aware of our concerns.” If the Senate were to pass ILC legislation, Frank would be on a conference committee to smooth out any differences between the House and Senate versions to produce a final bill.
The banks attracted little attention until recent years, when more and more major companies began seeking charters to do bigger and more elaborate lending. Today, 58 companies, including General Motors Corp., Target Corp. and American Express Co., operate ILCs.
The growth of ILCs became controversial in 2005 when Wal-Mart applied for a charter. Union activists and community bankers launched a campaign to keep the world’s largest retailer out of banking, saying its scale would crush independent banks.
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Bowing to political pressure in March, Wal-Mart withdrew its application. Nevertheless, the House wants to prevent ILCs from proliferating.
“We’re doing this to get ahead of the problem,” Frank said on the House floor. “If we don’t act, we will see some problems.”