The American Financial Services Association, a trade organization that represents an array of financial-services companies that extend credit to consumers and small businesses, said Monday it intends in April to testify in favor of Wal-Mart's industrial bank application before the Federal Deposit Insurance Corp.

Wal-Mart contends it wants to use its industrial bank to save money on credit-card processing fees. It maintains it has no plans to use the bank as a stepping stone to open company-owned branches in its more than 3,300 U.S. stores.

Opponents such as the Independent Community Bankers of America, though, fear the worst.

They are afraid the giant retailer secretly intends to use its Utah bank to place branches in its stores and offer savings accounts, auto loans and other services that eventually would harm community banks in the same way that hardware and grocery stores are hurt when a Wal-Mart store opens in a small town.

The association is approaching the controversy from a different viewpoint. It believes commercial banks oppose Wal-Mart's application because they are afraid of competition.

"The reason we're getting engaged is that by using Wal-Mart as a soapbox, some people are arguing that ILC's are not adequately regulated, and that's just false," William Himpler, executive vice president of government affairs at the Washington, D.C.-based AFSA, told Bloomberg News.

Industrial banks - also known as industrial loan corporations, or ILCs - were authorized under an exemption in federal banking laws enacted by Congress in 1987. That exemption for the first time since the Great Depression gave stock brokerages, retailers and other commercial companies an easy way to own a federally insured bank.

ILCs, however, aren't regulated by the Federal Reserve as are national banks. Instead, they are regulated by the FDIC, the agency that guarantees customer deposits should a bank go belly up. And it is that lack of Federal Reserve oversight that has many of Wal-Mart's opponents speaking out against ILCs in general. And they are arguing they are inadequately regulated and have an unfair advantage over their more-regulated competitors.

AFSA Vice President of Communications Lynn Strang said if given the opportunity to comment before the FDIC, the trade organization will address the misperception that intermixing of banking and commerce is harmful to consumers.

"Industrial bank charters can provide advantages to their owners that, in turn, can benefit borrowers," Stang said.

Yet lawmakers in several states have introduced bills to restrict Wal-Mart's plans should that entail branch banking.

Rep. John Gleason in Michigan proposed a bill late last week in that state's Legislature that would bar industrial banks. Similar legislation has been introduced in Maryland, Illinois and Virginia.

"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."

Utah Bankers Association President Howard Headlee described the proposed legislation in those states as an overreaction.

"Only a few of the industrial banks in Utah have branches, and none of them use their charters to pursue a retail strategy," he said. "Wal-Mart has promised that it won't use its [industrial] bank to branch, and we intend to hold the company to its word."

The FDIC intends to conduct public hearings on Wal-Mart's application for federal deposit insurance April 10-11 in Washington, D.C., and April 25-26 in Kansas City, Mo.

steve@sltrib.com

In other Wal-Mart developments

The retailer plans to hire up to 150,000 employees in China over the next five years, five times its work force there, as it expands its number of stores. Wal-Mart has targeted China, long a supplier of its products, as a key region for international store growth. It has 56 stores and will add another 20 this year.