Wal-Mart, TD: Could They Make It Work?

By Blackwell, Rob | American Banker, January 3, 2002 | Go to article overview

Wal-Mart, TD: Could They Make It Work?


Blackwell, Rob, American Banker


Despite a regulatory rebuke and opposition from some lawmakers, Wal-Mart Stores Inc. is expected to revive its controversial plan to offer banking services in at least 100 stores in a partnership with a Toronto-Dominion Bank unit.

The retail giant's foes and allies agreed Wednesday that the Bentonville, Ark., company, which had hoped to put its deal with TD Bank USA into action by the end of this year, is determined to offer its customers checking and savings accounts.

"Wal-Mart ... will continue to pursue a strategy to make financial services available to customers in their various stores," said Robert R. Davis, managing director of government relations for America's Community Bankers, which supports Wal-Mart's application. "In Canada, there is a particular relationship with Toronto-Dominion, and they are looking for a way in some stores where there are no current bank relationships to extend the model that works with TD. The question is just how can they do it under current law."

Wal-Mart's first regulatory application was harshly rejected in late October by the Office of Thrift Supervision, which said that, because store employees would have been allowed to work as bank personnel, the partnership would have violated the legal barriers between banking and commerce.

But sources now cite another reason the OTS turned down the application: It felt that Wal-Mart and TD Bank USA basically wanted to operate the branches jointly, sharing managers and splitting the profits. This section of the application was considered confidential and not made public, but sources said regulators were loath to permit such close business ties between a bank and a retailer.

Indeed, in its Oct. 31 rejection, the OTS cited "various agreements and plans" in the application that amounted to Wal-Mart's having "control over TD Bank USA" and said Wal-Mart "would therefore be deemed a savings and loan holding company." The agency concluded that "the proposal is a circumvention of ... the Home Owner's Loan Act, which prevents a company engaged in commercial activities from becoming a savings and loan holding company."

Such an arrangement would be much different from the hundreds of local partnerships Wal-Mart has established with community banks, which essentially just rent space in the store to operate a branch.

Wal-Mart clearly wants a bigger role in the financial services business. In 1999 it tried to become a unitary thrift holding company, which would have enabled it to own a single thrift while still conducting commercial activities. But the Gramm-Leach-Bliley Act of 1999 banned the approval of such applications filed after May 4, 1999, and barred commercial companies from merging with existing unitary thrift holding companies. …

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