Wal-Mart, the largest retailer in the world, has become the retail corporate poster child for unscrupulous behavior. And now they would like to be a poster child for the banking industry or at least for the industrial banks. Earlier this year, Wal-Mart took another stab at entering the world of banking by applying to the FDIC to become an industrial loan company (ILC). Simply to process credit card/debit transactions and electronic checks, they say.

However, this is the fourth time Wal-Mart has tried to get its foot into the door of commercial finance. It tried to buy an Oklahoma-based thrift in 1998, tried to partner with a Toronto-based bank in 2001 and tried to buy a California ILC in 2002. It was blocked in each case, by Congress, the federal Office of Thrift Supervision and the California legislature, respectively. Applying to become an ILC is just Wal-Mart’s latest strategy. Unlike other banks, ILCs fly under the radar of federal regulating agencies and are exempt from rigorous regulatory oversight procedures, including safety and soundness examinations that ensure taxpayer deposits are not endangered.

The federal Community Reinvestment Act (CRA) states that banks have “continuing and affirmative obligations to help meet the credit needs of the local communities in which they are chartered.” The act also established a regulatory regime for monitoring the level of lending, investments and services in low- and moderate-income neighborhoods that have been traditionally underserved by lending institutions. For special purpose banks, such as industrial loan companies, this might include affordable housing loans, low-income housing tax credits or investments in organizations that finance small businesses. However, to avoid these solemn legal responsibilities to communities, Wal-Mart originally requested to be exempt, or rather opt out, of its CRA obligations.

Under pressure from advocacy groups, Wal-Mart has since decided to abide by CRA regulations. It is doing so only in response to widespread media coverage of fair lending activists’ protests against its exemption request. Its grudging acceptance of CRA suggests that Wal-Mart will try to engage in only minimum levels of compliance and reinvestment. It also speaks to the lack of understanding that community banks, intermediate-size banks and even big banks have about community reinvestment. Rather than accepting its obligations to meet the credit needs of all the communities it reaches, Wal-Mart initially promised to “serve the needs of the unbanked and underbanked residents of the Salt Lake City Metropolitan Statistical Area by participating in financial education programs.”

“It’s ludicrous for the world’s largest retailer, applying to get a banking charter, to try to limit its community reinvestment duties to a single county in Utah,” says Matthew Lee, executive director of Inner City Press/Fair Finance Watch. “To some degree Wal-Mart’s bogus CRA plan is part of a larger story about the loopholes in Community Reinvestment Act enforcement, including kid gloves treatment of industrial loan companies. [But] Wal-Mart’s many claims about its application and potential benefits [in] its late-filed March 31, 2006 CRA Plan are laughable. Wal-Mart’s application should be denied.”

If Citigroup or Bank of America attempted to fulfill their community obligations solely through financial education programs, imagine the response of federal regulators and the American public. It would never be tolerated. Regardless of the impact of the programs, financial education would never be able to replace the access to credit and capital which CRA obligates banks to provide. A broad array of full banking services and products should be made available to everyone, not just the well heeled in communities, but to those who are working up the economic ladder as well.

The National Community Reinvestment Coalition believes that an ILC of Wal-Mart’s size would pose significant threats to low- and moderate-income communities, small businesses, community banks, American taxpayers and the U.S. banking system. There’s no evidence that a company with Wal-Mart’s history would promote community reinvestment or economic development through its CRA outreach. Moreover, the bank would not base its lending decisions on sound underwriting criteria. Instead, it would favor Wal-Mart’s retail side and cut off credit for its competitors. The bank would also be tempted to finance speculative and risky ventures by its retail side. With a bank the size of Wal-Mart, the end result would be a significant reduction in credit for independent small businesses.

Finally, it is our belief that Wal-Mart has little intention to have simply a limited bank charter. Rather, since it has tried on three other occasions, the intent is to become a full-fledged bank. Given their business model, which drives competitors out of the market, we think this will be bad news for traditionally underserved people.