WASHINGTON — The number of states debating legislation that would block Wal-Mart Stores Inc. and other commercial companies from using an industrial loan company to offer in-store banking services has more than doubled, to 12.
Seven more states — Connecticut, Illinois, Massachusetts, North Dakota, Tennessee, Washington, and West Virginia — have followed five others that began debating an ILC bill early in their legislative sessions.
Proponents said the prevalence of bills, coupled with existing state policies — including five state laws enacted last year — means commercial firms one day may be blocked from bank branching, regardless of whether Congress passes a bill of its own.
"There isn't, per se, a national strategy," said Kevin Kiley, the executive vice president and chief operating officer of the Massachusetts Bankers Association. "It's more a case of individual states recognizing the potential risk associated with having commercial firms such as Wal-Mart having broad-based banking powers and the adverse impact they'll have on community banks."
Wal-Mart's July 2005 application to charter a Utah ILC has amplified a contentious debate about whether ILCs should remain available to commercial companies. The retailer, which says it would use the charter to save on electronic payment fees, denies it has plans to offer branch banking, and it has not mounted challenges to the individual bills.
"Our answer is the same as it has been since we've seen these bills coming out," a Wal-Mart spokesman said. "These bills are misdirected. They seek to prevent us from doing something we have no interest in doing."
But existing ILCs oppose the bills, arguing that they address no immediate concern and would preclude existing institutions from innovating in the future.
"In my view, I think they are blatantly unconstitutional," said George Sutton, an attorney for the Utah Association of Financial Services. "Tomorrow some opportunity may pop up for a bank that would require branching, and it would be in high demand and very beneficial to the bank — a win-win all the way around. All of a sudden, that's blocked."
California began the trend in 2002 by passing a bill that said commercial firms could not own ILCs. The bill effectively blocked Wal-Mart's plan to buy one in the state. A year later Colorado passed a law banning commercial ownership of such companies.
After Wal-Mart submitted its 2005 application, state efforts began gathering momentum. Oklahoma, Maryland, Virginia, Iowa, and Missouri enacted laws last year to ban commercially owned ILCs from branching into their states. And early this year Kansas, Maine, Nebraska, and Texas began considering similar bills , while Colorado began debating even tougher measures.
Several state representatives said they had contemplated pushing a bill last year but had hoped Congress would act to restrict ILC ownership. After such a bill did not pass, the state representatives said, they felt motivated to act.
"We made the decision last year at the end our session that we would address it this year if nothing had been done on the federal level," said Joe Ellison, the chief executive officer of the West Virginia Bankers Association. "Before this session started, we had already worked on the bill and fashioned it after a couple that had already been run."
State representatives said there was some collaboration among state trade groups.
"We're definitely talking to our counterparts and seeing what they're doing," said Rick Clayburgh, the president of the North Dakota Bankers Association, which is pushing a bill along with the Independent Community Bankers of North Dakota.
Douglas Kantor, a Washington attorney for the Sound Banking Coalition, said not every state may need to pass an anti-branching bill since approximately 30 states lack reciprocal branching arrangements that make it easy for banks to branch across state lines.
States with reciprocal arrangements are the ones pressing for legislative action, Mr. Kantor said.
"It's possible that all the states with reciprocal branching may pass legislation along these lines," he said.
Wal-Mart and Home Depot Inc. are among four companies caught in a Federal Deposit Insurance Corp. moratorium on applications by commercial companies to own ILCs.
Federal lawmakers also are considering legislation. The House is set to begin debate on a bill introduced by Financial Services Committee Chairman Barney Frank, D-Mass., and Rep. Paul Gillmor, R-Ohio, that would bar commercial companies from owning ILCs. A hearing on the bill is likely to take place March 22, several sources have said.
Sen. Jack Reed, a Senate Banking Committee member, said Tuesday that his chamber also plans to address the matter.
"This issue will come to us in the Senate, and I frankly think that the approach that Chairman Frank has taken … represents an appropriate policy for everyone," the Rhode Island Democrat said at a conference sponsored by America's Community Bankers.
