U.S. House Panel Approves Bill to Block Retailer-Owned Banks

Legislation aimed at preventing retailers and other nonfinancial companies like automakers from operating a bank was approved by the U.S. House Financial Services Committee.

The bill, backed in a voice vote, would bar a company with less than 85% of revenue generated from financial services from owning and operating a type of bank known as an industrial loan corporation (ILC). The bill would allow existing ILCs owned by such companies.

The legislation next goes to the full House of Representatives for a vote. There is no companion legislation in the Senate.

ILCs are state-chartered banks with access to federal deposit insurance. They can offer deposit accounts, mortgages, credit cards, loans and other services.

U.S. banks, especially smaller ones, have voiced concern about a surge in ILCs over the last two decades, saying they could be forced out of business if retailers like Wal-Mart Storesand Home Depotenter the industry. Targetalready owns an ILC.


In March, Wal-Mart withdrew its ILC application at the U.S Federal Deposit Insurance Corp. Home Depot is still seeking permission to operate an ILC, but the FDIC has a moratorium on such applications until January 2008.

Rep. John Campbell, a California Republican, urged the committee to amend the bill so that automakers and motorcycle companies could apply for new ILCs. He withdrew the amendment after panel chairman, Democratic Rep. Barney Frank of Massachusetts, said the amendment could be brought up again if the Senate considers similar legislation.

Spencer Bachus of Alabama, the panel's top Republican, expressed concern the bill could have unintended consequences in the auto sector where some makers, like Volkswagen, already have ILCs.

The bill means that pending ILC applications by Ford Motorand DaimlerChryslerwould be "frozen out," Bachus said.

Steve Verdier, a senior vice president of the Independent Community Bankers of America, said his group opposed changing the bill to exempt retailers that sell big-ticket items such as cars.

The American Financial Services Association, a trade group for industrial banks, called the bill "unfair and anti-competitive."

The ILC industry has combined assets of more than $170 billion. The biggest ILC bank is Merrill Lynch Bank USA, which had about $67 billion in assets last year.