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GRAND RAPIDS, Mich. -- Leaders of the United Food and Commercial Workers Local 951 based here are praising recently introduced legislation to restrict industrial banks, including one proposed by retail giant Wal-Mart, from opening branches in Michigan.
State Rep. John Gleason, the bill's sponsor, said Michigan should not allow industrial banks, called industrial loan companies (ILCs) to open shop because they escape a level of supervision that other banks must face.
Under Gleason's proposed legislation, out-of-state industrial banks would be carved out of Michigan's definition of an out-of-state bank, which would keep state officials from authorizing an industrial bank to open branches in Michigan.
"My legislation will protect Michigan banks and Michigan consumers from out-of-state banks that don't have to play by the same rules," Gleason said in a statement. "Owners of ILCs avoid regulations that apply to owners of full-service banks. If the state of Utah is irresponsible enough to let a company like Wal-Mart operate an ILC in their state, that is their business -- but we will not allow it to happen here."
The proposed legislation in Michigan comes as Wal-Mart's application to open an industrial bank in Utah attracts heightened attention both in Washington from some in Congress, and in the offices of banks fearful of competing with the retail powerhouse.
Industrial banks are state-chartered and state-regulated, and fall under the supervision of the U.S. Federal Deposit Insurance Corp. Commercial companies may own them because federal laws that bar non-financial companies from engaging in banking activities do not classify them as banks.
The U.S. Federal Reserve has urged Congress to review a loophole in federal law that allows the commercial owners of industrial banks to escape a level of federal supervision.
"Michigan has a reciprocal banking agreement with Utah that would allow Wal-Mart to immediately open branches in this state, leaving working people and community banks exposed to the same predatory practices that have forced thousands of small retailers, convenience stores, grocers and other locally-owned small businesses to close their doors," said Robert Potter, president of UFCW Local 951, which opposes any expansion of Wal-Mart's dominance in the retailing sector.
"Wal-Mart's pattern is to enter local communities and use predatory pricing and other techniques to run its competitors into the ground," Potter said. "There is no reason to believe this company will not engage in the same practices to build a new empire in banking. 'Wal-Mart Bank' would likely prey on low-income workers and drive small community banks out of business."
Current Michigan law gives ILCs chartered in about 20 states -- including Utah -- the right to open branches here. In return, these states give state-chartered banks the same privilege. With a highly favorable banking code, Utah has become home to 60 percent of the nation's ILCs -- and its state treasury has profited from an extremely high ILC tax rate.
"Once chartered in Utah, 'Wal-Mart bank' would immediately be permitted to branch into Michigan and leverage its market strength to run small banks out of business," Potter said. "We simply can't let Wal-Mart run our state's financial institutions out of business like they have done to thousands of convenience stores, grocers, pharmacies, hardware stores, florists and countless other small businesses."
UFCW 951's members are employed by Meijer, Kroger, Rite Aid, Plumb's, and Farmer Jack, among other retailers.