By KATE BERRY
Toyota Motor Corp. is starting to flex its financial muscle in California by making real estate loans and offering deposit accounts to its Toyota and Lexus dealers, part of a plan to eventually provide an array of banking services to the public.
Japan’s No. 1 automaker won approval last month from the California Department of Financial Corporations to expand electronic payment processing and marketing at Toyota Financial Savings Bank, its full-service bank that opened last year near Las Vegas.
Toyota is barred from opening a bank in California because legislators passed a law in 2002 that prohibits non-financial institutions from buying an industrial bank.
The move was aimed at keeping Wal-Mart Stores Inc. from acquiring a bank in the state, and it has revived debate about commercial corporations owning banks (see related story, page 15).
Toyota’s recent application with state banking officials allows some functions for its Nevada bank to be processed at its Torrance campus.
The automaker employs about 400 people in Orange County working in sales, design and other functions.
“We are developing the infrastructure to be able to offer real estate loans,” said Raymond Specht, president and chief executive of Toyota Financial Savings.
Specht is the former chairman and chief executive of Volkswagen Bank USA, in Salt Lake City.
“In California, we’ll offer real estate loans through our dealers first, and our plans down the road will include home equity lines of credit,” Specht said.
Toyota already offers auto loans through its U.S. finance arm, Toyota Financial Services. Now it is utilizing its industrial bank charter in Nevada, which accepts deposits and offers online bank accounts, to provide real estate loans to its 169 Toyota and Lexus dealers in California starting this month.
The automaker began a Lexus credit card in June. Other types of loans are set to be rolled out in the next few months and soon will be available to Toyota’s customers.
Toyota, Volkswagen AG, BMW AG, Target Corp. and Pitney Bowes Inc. are among the corporations that have received industrial bank charters in Nevada and Utah. Just seven states allow non-financial institutions to open industrial banks, which typically offer loan and deposit products but not business checking accounts.
The concept isn’t new. GMAC Financial Services, a unit of General Motors Corp., has been financing auto, home equity and small business loans for decades. But state regulators say that large corporations are becoming more interested in owning banks so they can sell financial services to their customers and maintain brand loyalty.
Independent community bankers have been lobbying Congress to debate the merits of allowing companies to open their own banks. The two types of institutions are subject to different regulatory rules.
The Federal Deposit Insurance Corp. has received 1,550 complaints from community bankers since Wal-Mart filed an application in July to open an industrial bank in Utah. The application hasn’t yet been approved.
Wal-Mart has said it only plans to process credit and debit card charges. But bankers fear the world’s largest retailer will open branches at its stores, increasing competition.
A coalition formed to keep the Bentonville, Ark.-based retailer out of banking includes the Independent Community Bankers of America, the National Grocers Association, the National Association of Convenience Stores and the United Food and Commercial Workers union.
Wal-Mart’s efforts have created problems for companies such as Toyota that also are interesting in banking.
“One of the questions customers ask us is, ‘Why didn’t we open a bank in California?'” Toyota’s Specht said. “The only states available are Nevada and Utah.”
Karen Thomas, executive vice president for government relations at the Independent Community Bankers of America, a trade group, said banks are not opposed to increased competition.
Rather, she said, bankers want Congress to eliminate a 1987 loophole that allows the parent companies of industrial banks to be exempt from regulatory supervision under the Bank Holding Act.
Thomas said that creates an unequal playing field on which banks are subject to regulatory supervision but industrial banks escape oversight by the Federal Reserve.
Industrial banks are state-chartered, federally insured banks that first were started in the 20th century to allow companies to offer small loans to their workers.
“Wal-Mart is Wal-Mart, so they capture everyone’s attention and make people sit up and take notice,” Thomas said. “We are strong supporters of the separation of banking and commerce.”
Berry is a staff writer with the Los Angeles Business Journal.
