Although Congress has kept commercial companies and banks separated for five decades, it has allowed an exception for limited-purpose banks known as industrial loan companies. Now, with a growing number of retailers opening ILCs, Congress must "close, and not just narrow, the loophole," said Donald L. Kohn, vice chairman of the Federal Reserve System.
Federal Deposit Insurance Corp. Chairman Sheila C. Bair told the House Financial Services Committee that the rapid growth of ILCs does "raise potential risks" best addressed by Congress.
But Rep. David Scott, a Georgia Democrat, whose district includes Home Depot's headquarters, said many consumers would benefit from getting limited banking services from commercial companies.
The Atlanta-based home-improvement company wants to help homeowners get loans for remodeling projects, a move that "would be a major help to the consumer," Scott said. "Let's not throw the baby out with the bath water."
In January, the FDIC, which oversees state-chartered ILCs, extended a moratorium on applications for one year to give Congress time to act. But Bair warned that "the FDIC cannot defer action on these matters indefinitely."
Home Depot spokesman Anthony Wilbert said the company will wait out the moratorium and then proceed with its plan to acquire EnerBank USA, an existing ILC.
"Homeowners need access to capital to fund home improvements," he said.
Since 1987, Congress has allowed commercial companies to own ILCs, which were intended to help low-income workers get small loans.
At first, such banks attracted little attention. But in recent years, more and more major companies have been seeking ILC charters. The FDIC says ILC assets grew from about $12 billion to $213 billion between 1995 and 2006.
Today, 58 companies, including General Motors Corp., Target Corp. and American Express Co., operate ILCs, with most being chartered in Utah.
Quiet grumbling about expanding ILCs turned into a loud roar in 2005 when Wal-Mart applied for a charter.
That application triggered intense opposition from union activists and community bankers who insisted that the world's largest retailer would eventually open full-service bank branches. They claimed Wal-Mart would use its immense scale to crush independent banks.
Inundated with complaints, the FDIC imposed the moratorium to block Wal-Mart's application. That ban is holding up all applications, including Home Depot's.
Wal-Mart offers a store credit card, check cashing, money orders, wire transfers and bill-payment services in partnership with outside vendors. But such services don't require federal deposit insurance. Wal-Mart said that if the FDIC would insure its ILC, it would use the bank strictly to cut costs by processing its credit-card and debit-card transactions internally.
In March, Wal-Mart bowed to political pressure and withdrew its application. Still, its critics fear that unless Congress acts, Wal-Mart eventually will return with another application.
Rep. Barney Frank, a Massachusetts Democrat and the committee chairman, and Rep. Paul E. Gillmor, an Ohio Republican on the panel, have introduced the Industrial Bank Holding Company Act of 2007 to block new ILCs and expand the FDIC's examination and enforcement powers over existing ones.
The bill appears likely to pass in the House, but will face an uncertain future in the Senate, where Sen. Robert F. Bennett, a Utah Republican, is a defender of ILCs.