Washington Watch


Retail Me Not

By Viveca Y. Ware

The world’s largest company returned to the world of banking when it recently announced it would begin offering checking accounts in stores nationwide. Wal-Mart Stores Inc. is positioning its latest move into the financial industry as a low-cost alternative to traditional bank checking.

Recent Letters to Regulators

ICBA filed several comment letters to federal regulators this fall, including these three:

FHLBank membership. ICBA explained to the Federal Housing Finance Agency how its proposal to revise requirements for how financial institutions apply for and retain membership in Federal Home Loan Banks would profoundly affect community banks. Among its provisions, the FHFA proposal would require all FHLBank members to hold 1 percent of their assets in home mortgage loans. It also would require certain members to continually adhere to a 10 percent residential mortgage loan requirement.

Secondary-market mortgages. On Fannie Mae and Freddie Mac guarantee fees, ICBA told the Federal Housing Finance Agency that all lenders should obtain the same price for the same loan from the same government-sponsored enterprise, regardless of an institution’s size, delivery channel or loan volume.

Among other comments, the association wrote the prices of all loans sold to Fannie and Freddie should be based on risk to avoid adverse selection.

TILA-RESPA disclosures. ICBA and 15 other trade associations issued several recommendations to the Consumer Financial Protection Bureau to foster timely and efficient execution next August of new mortgage-lending disclosures under the Truth in Lending Act and the Real Estate Settlement Procedures Act. Among the recommendations, the associations asked the bureau to write guidance addressing common lender questions; conduct forums and conferences; provide more examples of completed TILA-RESPA forms; address conflicts with state laws; and work with other regulators to develop consistent examination procedures.

Read ICBA’s comment letters at www.icba.org/advocacy.

What the Bentonville, Ark.–based mega-retailer neglects to mention is that community banks have been offering low- and no-cost checking accounts for decades. Nevertheless, ICBA’s message is simple: If Wal-Mart is going to serve as a conduit for consumer checking accounts, these accounts should be subject to the same legal and regulatory framework as traditional checking accounts offered by banks.

Wal-Mart is teaming with prepaid payments card provider Green Dot Corp. and its bank, Green Dot Bank, to offer the new checking account product. The checking account, called GoBank, would be available to individuals over 18 who pass an in-house identity check.

Wal-Mart shoppers can open a “free” GoBank account by purchasing a $2.95 starter kit. The FDIC-insured checking accounts also have an $8.95 monthly membership cost, but those fees are waived for customers who receive qualifying direct deposits of at least $500 per month. Wal-Mart stores effectively serve as bank branches, and accountholders have access to a debit MasterCard and a network of 42,000 free ATMs.

Banking and commerce

ICBA’s reaction to the Wal-Mart announcement was swift and simple: The mega-retailer should stick to its retail business and leave banking to banks. Retailers and banks specialize in their distinct and separate businesses for good reason—mixing the two can result in serious conflicts of interest.

Further, if consumers are interested in low-cost checking, then they should look no further than their local community bank. The nation’s community banks have offered low-fee and no-fee basic checking accounts for decades. Nowhere else will consumers find highly accessible accounts with the one-on-one level of service they can get from community banks’ relationship-based businesses model.

If Wal-Mart is going to serve as a conduit for offering traditional banking services, it needs to protect its customers’ financial health just as is required of all banks. That means it should have to face all appropriate state and federal banking laws and regulations. Of course, that includes those involving consumer protection, FDIC deposit insurance, privacy and data security, and Bank Secrecy Act and anti-money laundering safeguards—I could go on.

Call for consistency

That is why in addition to urging customers to use community banks for their checking accounts, ICBA has called on policymakers to ensure GoBank accounts are subject to the same legal and regulatory framework and oversight as traditional bank accounts.

A consistent regulatory framework would allow customers to have a common experience, whether they are using a traditional banking account or an alternative channel for services like those offered by Wal-Mart. It would also ensure Wal-Mart and other nonbanks are unable to enter the business of banking while avoiding bank regulation and supervision.

Further, ICBA remains concerned that Wal-Mart’s plan violates state banking and branching laws concerning deposit-taking. Because Wal-Mart checking accountholders could open an account at the retailer’s stores and also add value to their accounts at stores nationwide, we’re calling on policymakers to review whether this activity represents a violation.

The bottom line is that if Wal-Mart wants to get into the business of banking, it should have to follow the multitude of regulations that community banks nationwide face every day. Meanwhile, as always, if consumers really want to find a low-cost checking option they should skip the Wal-Mart checkout line—and go see a community banker.

Viveca Y. Ware (viveca.ware@icba.org) is ICBA executive vice president of regulatory policy.