Fed Cautions Congress On Industrial LoanCompanies

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WASHINGTON - (07/13/06) – A top official with the FederalReserve warned Congress Wednesday that the growing number ofbank-like industrial loan company charters, like the one sought byretail giant Wal-Mart Stores, is a threat to the nation’slongstanding separation of banking and commerce and could underminethe the supervision of the financial system. Scott Alvarez, theFed's general counsel, told a House Financial Services subcommitteethat Congress should act on a loophole that allows non-financialcompanies to own ILCs. But the Fed official stopped short ofcalling for a ban on commercially owned ILCs, as new legislationintroduced this week would do. The Wal-Mart application, expectedto be ruled on soon by the FDIC, has caused major opposition amongbanks and thrifts who object to the possibility of competing forfinancial services with the nation’s largest retailer, andcommunity groups who have criticized the company’s practices.The growing controversy comes as the FDIC is reviewing applicationsfrom two credit union groups to operate ILCs in order to buy andmanage credit union credit card portfolios. The applications, froma group headed by CUNA Mutual and another from Wescom CU, are notexpected to be acted on for several months.

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