Walmart's Dirty Little Banking Secret

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Walmart's Dirty Little Banking Secret
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Walmart's Dirty Little Banking Secret

If we had to pick one brand to represent the values of the Occupy movement — or more broadly, America's disdain for big banks — Walmart would definitely not be it. But The New York Times is now calling Walmart and its burgeoning Money Center business a "surprising beneficiary" of Americans' collective rage against Wall Street.

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The article's timing was prescient: just a few hours after it appeared online, Bank of America agreed to a $410 million settlement with customers disgruntled by exorbitant overdraft fees. There were also reports of Bank of America employees running for the doors as the company prepares to lay off 10 percent of its work force.

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Is the Walmart model is the better way to go? At face value, the proposition makes sense. Andrew Martin and Stephanie Clifford report:

Even before the recent outcry against banks, the services had become popular with cash-poor customers, many of whom never had a bank account and found the services more affordable than traditional check-cashing operations. Now newcomers to the ranks of the banking disaffected are helping to swell the numbers, Wal-Mart officials said.

For the increasing number of Americans living paycheck-to-paycheck, Walmart offers the basic banking services for a cheaper rate (watch for falling prices!) and, more importantly, without the risk of unexpected charges like overdraft fees. Cashing a paycheck at the Money Center costs only $3. For an additional $3 flat fee, Walmart will put the money onto a prepaid debit card. The Times quoted one Money Center customer, who had switched to Walmart after being slapped with a $400 overdraft fee. "I always come here," she said. "I don't like banks anymore."

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Here's the catch for the Occupy types. Yes, Walmart is one of the world's largest corporations, but it's not one of the tentacles of the vampire squid that is America's financial sector. On the other hand, one of Walmart's main Money Store partners, GE Capital, sort of is. Though they initially contemplated launching a more robust financial services business, Walmart has stayed away from selling mortgages or investment vehicles. GE Capital, however, epitomizes the too-big-to-fail model and nearly brought down its parent company, General Electric, during the financial crisis. Just like Bank of America and Citi, GE Capital is back on a bull run. As The Wall Street Journal reported a month ago:

GE Capital, which accounted for about a third of the parent company's revenue last year, is a significant lender in its own right. The unit's $606 billion in assets make it bigger than all but seven U.S. banks, and it dwarfs the lending arms at other industrial companies …

The finance unit now is on significantly firmer, longer-term footing — thanks in part to paring back its reliance on short-term borrowing — and problem loans have been contained. But in a sign the crisis isn't fully in the past, the U.S. regulator for mortgage giants Fannie Mae and Freddie Mac sued GE and 16 other big lenders Friday aiming to recoup billions of dollars in losses on soured mortgage loans.

Cashing checks at Walmart doesn't mean you're throwing fuel on the fire that will burn down the American economy. But just as Bank of America charges hidden fees, Walmart maintains hidden alliances that undermine customers' hope to escape the rule of big banks. If we've learned anything over the course of the past three years, though, it's that the vampire squid spreads its tentacles wide, and it's hard to escape. For those really looking for an alternative, try joining a credit union

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