CUs Woo Wal-Mart Despite Its ILC Bid

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Credit unions continue to ignore the brewing storm over a bid by Wal-Mart Stores to obtain a banking charter and are moving to expand their in-store branching at the nation's largest retailer.

Several credit unions announced plans last week to develop Wal-Mart branches, confident in the company's promise it won't use its banking charter to develop its own in-store branch network.

The move comes as the controversy over the Wal-Mart industrial loan company, a so-called back-door bank, continues to rise, with 100 lawmakers from both parties urging the FDIC to halt all new ILCs applications-including two pending credit unions requests-until Congress has thoroughly debated the issue. That's as home improvement giant Home Depot has also joined Wal-Mart in an attempt to enter the banking business with its own ILC.

But C. Lee Brice, VP-branch operations for Desert Schools FCU, said the CU is moving ahead with its plans for Wal-Mart branches and plans to open seven more in 2007, making a total of 26 in-store branches at Wal-Marts in the Phoenix area.

And separately, Chaco CU, Hamilton, Ohio, said it opened two new Wal-Mart branches in the Cincinnati area, making a total of three Wal-Mart operations for the $130-million CU.

Brice said Desert Schools, which operates the largest chain of in-store Wal-Mart branches of any credit union, is confident of its relationship with Wal-Mart for at least the next 10 years. That's because the $2.5-billion credit union's contract with Wal-Mart includes a five-year lease and a five-year renewal at the credit union's option. "After 10 years," said Brice, "who can really say."

The Wal-Mart branches have been extremely successful for Desert Schools, said Brice. "We are in Wal-Mart for one reason only, and that is to have access to their customer base in order to grow our business," she said.

The Wal-Mart branches for Desert Schools are generally 600-to 700-square-feet and are staffed by three full-time and seven part-time employees. They are open from 9 a.m. to 7 p.m. six days a week.

Desert Schools also opened two in-store branches in Safeway grocery stores this year and, after the seven new Wal-Mart branches are opened, will have 32 in-store branches.

During hearings earlier this spring before the FDIC, which must approve federal deposit insurance for its ILC, Wal-Mart officials insisted they will not use the banking charter to develop its own in-store branch network, in competition with the more than 300 credit unions and banks that currently operate more than 1,300 branches in its stores. The banking charter, they said, will be used primarily so that Wal-Mart can process the billions of dollars in electronic transactions that flow through its stores every day, saving the company millions of dollars in third-party processing fees.

But Wal-Mart critics, including many in Congress, suggest that the retail giant could change its plans down the road once it is granted a banking charter, then start to build its own branch network. The crux of the matter is the long-time ban on banking by non-financial companies, which ILCs have allowed numerous companies to circumvent. For instance, Target Stores, one of Wal-Mart's main competitors, was granted an ILC charter last year.

Any short-term ban on new ILCs would harm two pending credit union projects, one by a group organized by CUNA Mutual, the other by Wescom CU, to use an ILC charter to set up separate credit card banks specifically for CUs.

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