The Wall Street Journal on Banks, Overdraft Fees and Wal-Mart

You might have noticed Mark Friedman's cover story in this week's Arkansas Business examining Wal-Mart Stores Inc.'s push into financial services, including money transfers, auto insurance services and pre-paid cards that act like checking accounts.

The whole story's a good read that show's that, despite the multi-pronged approach the retailer is taking, it all boils down to a pretty simple idea, helpfully articulated by Howard Davidowitz, chairman of Davidowitz & Associates Inc., a retail consulting and investment banking firm in New York, who says it's all about luring more customers into Wal-Mart's stores.:

"What this says to their core constituency is, 'Look, this is another reason to come see us,'" he said. "And if you can do more for your core customer, that customer is going to come to the store. … I think this is very wise."

Friedman's story happens to coincide with a look at one aspect of Wal-Mart's financial services arsenal: allowing independent banks to lease space inside Wal-Mart's Supercenters.

An examination by the Journal finds that customers of some of those independent banks are among America's highest payers of bank fees — a large chunk of which come from overdraft charges. Those overdrafts, some say, are looking a lot like loans.

How does it work? From the Journal story:

On a rainy morning in April, Anna Proctor entered a Wal-Mart Supercenter near some of this city's poorest areas to get $300 for urgent car repairs—money she didn't have.

Inside, she joined a line at a Woodforest National Bank branch and intentionally overdrew her account. When her paycheck was deposited 12 days later, she said, the bank would take the borrowed sum plus a $30 fee.

"It's cheaper than a payday loan," said Ms. Proctor, a 35-year-old customer-service worker. If her overdraft and fee were calculated as a loan, the annual percentage-rate interest, or APR, would be over 300%. She said she overdraws "all the time."

Last November, Arkansas Business noted an Oklahoma bank's entrance into the Arkansas market via in-store deals with Wal-Mart. Fort Sill National Bank has four branches in Arkansas, all of them inside Supercenters. According to the Journal, 62 of the bank's 80 branches are inside Wal-Marts, and the company has generated more than $50 million in fees in 2013.

For Wal-Mart's part, a spokesman tells the Journal that the company has a "very thorough process" for vetting banks that lease store space to make sure "they're in line with Wal-Mart's philosophy of saving customers money." Wal-Mart also noted that it has no role in how the banks operate.

You can read Friedman's cover story here, and The Wall Street Journal story here.

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