Banks Fight Common Enemy-And It's Not CUs

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The nation's community bankers have turned their ire from credit unions to Wal-Mart stores of late, in fears that the retail giant is getting a foothold into the banking business.

But this battle may have negative ramifications for credit unions, just the same.

The bankers have organized a broad lobby against the Wal-Mart bid, which includes community activists, labor groups, and the local banks, of course. The group has deluged both the FDIC and the Utah Department of Financial Institutions with letters, e-mails and other correspondence opposing the Wal-Mart application.

As a result of the lobbying effort, the FDIC said it will hold public hearings on Wal-Mart's application for a Utah banking charter, something that has become the focus of increased opposition in the banking community and among community activists. The FDIC also indicated it may wait until a permanent chairman is appointed to render a decision on the Wal-Mart application.

The FDIC holds sway over the Wal-Mart application because it will provide the bank with federal deposit insurance.

The bankers are pushing the case that Wal-Mart could use the banking charter to set up branches in its more than 1,000 stores, evict current banking tenants, and set up shop in direct competition with the community banks.

Wal-Mart claims the bank will be used mainly to process transactions, for which the company needs a bank charter. Wal-Mart also notes that Utah banking charters have already allowed numerous non-banking companies to get bank charters, either as industrial loan companies or as industrial banks. They include Target, Sears, Ford, General Motors, GE Capital, and auto makers Volkswagen, Volvo and BMW.

The Wal-Mart struggle at the federal banking agency could presage a similar conflict when two applications from credit union organizations to obtain deposit insurance for their ILC credit card banks comes before the FDIC. Those are the Union Financial Services' application by a group including CUNA Mutual, Corporate One FCU, Certegy and Card Services for CUs; and a newly launched bid by Wescom CU and PSCU Financial Services. Union Financial has a state ILC charter in Utah and Wescom has purchased a state ILC charter in California. But both are applying to the FDIC for federal deposit insurance, since NCUA does not provide insurance for these kinds of operations.

In recent years, FDIC officials have weighed in on the banks-credit unions conflict and have increasingly expressed public concerns about credit union competition for banks. As recently as last year, top FDIC officials expressed their concerns to Congress over the credit union tax exemption.

One executive involved in the Wescom project noted that the FDIC has granted deposit insurance to other credit union projects, including more than 20 years ago for the credit union-owned Town North National Bank of Dallas, owner of TNB Card Services, and more recently, for the MEMBERS Trust project by Suncoast Schools FCU and CUNA Mutual. But the bankers are expected to make the case that the two new credit card bank projects represent a new level of entry for credit unions into the traditional banking markets.

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