Should Walmart Help Clean Up The Payday Loan Racket?

Walmart (NYSE:WMT) could help clean up the payday-loans business, where some providers charge fees bordering on extortion, if only the retail giant was allowed to start its own bank, according to Matthew Yglesias at

The idea is simple: Walmart already offers some financial services such as paycheck cashing, and charges less than companies whose primary business is cashing checks. Conceivably Walmart might be able to make payday loans as an extension of that existing service, and even if that doesn't turn a profit, the fact that it pulls customers in the door could make it worthwhile. That competition might help force down high payday-loan fees in many areas.

The problem: Walmart has repeatedly been denied a bank charter in the U.S., and has been blocked from buying banks in Oklahoma and California.

It's an interesting argument from Yglesias, even if it's more than a little optimistic—it's hard to believe that Walmart would intentionally get into a business it expects to lose money in. The check cashing, prepaid debit cards, money transfer and bill payment services that the chain currently offers are all very profitable, according to Walmart executives.

But that's not to say Walmart couldn't figure out how to make payday loans at least a break-even business. The bigger challenge is the fact that conventional bankers really don't want to be competing with Walmart.

Despite the fact that banks don't think low-income customers are worth the trouble, U.S. bankers have worked hard (and successfully) to block Walmart's efforts to get a bank charter since the 1990s. As recently as last December, a group of bankers that officially advises the Federal Reserve Board recommended that the Fed keep retailers out of what they called "shadow banking," and specifically called out Walmart and its efforts to come up with a payments alternative to conventional credit and debit cards in the form of MCX.

"Walmart has sought to enter banking formally for over a decade," the Fed-advising bankers said. "Faced with opposition, Walmart now appears to have entered banking through the back door, without the regulatory framework that applies to banks." Conveniently, the bankers neglected to mention that Walmart has bank charters in both Canada and Mexico—or to mention whose lobbying has kept Walmart out of conventional banking in the U.S.

It's hard to say what made the bankers suddenly so jumpy at that December meeting. Maybe they were just worried about MCX. But it might also have been a survey that was released just days before by financial consulting group Carlisle & Gallagher. It found that 48 percent of U.S. consumers would consider getting a mortgage loan from PayPal (NASDAQ:EBAY)—and one-third would consider getting one from Walmart.

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