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Home Depot Buys a Bank

By Martin H. Bosworth
ConsumerAffairs.com

May 11, 2006

Home Depot • Customer Service • Credit Policies • Equipment Rentals • "Interest-Free" Promotions • HomeDepot.com • An Insider's View --- • Appliances • Bathrooms • Doors • Floors • Gift Cards • Generator • Home Heating • Kitchen Dept • Nursery & Gardening • Rebates • Roofing • Siding • Special Orders • Windows & Siding • Expo Design Center --- • Contractors' Advice --- News • Home Depot Sells Supply Unit As Home Construction Sags • CEO Nadelli Ousted with $210 Million Severance • Home Depot Buys a Bank • Home Depot, Monogram Credit Card Bank To Pay Connecticut $672,000 • Home Depot, Lowe's Settle Credit Card Suit • 6 Months "Interest-Free" Class Action

Taking a page from Wal-Mart's book, Home Depot says it's planning to buy home improvement loan company EnerBank.

The Home Depot/EnerBank partnership would enable the Atlanta-based home improvement retail giant to offer loans to customers to get home improvement projects done, which they could then refer to their network of contractors.

It would presumably spell the end of Home Depot's relationship with the Monogram Credit Card Bank of Georgia, owned by GE Capital Corporation, which now issues Home Depot credit cards and offers financing to its customers.

Earlier this month, Home Depot and Monogram agreed to pay $672,000 to settle charges that its credit card payment practices unfairly increased interest costs for consumers in Connecticut. It was the latest in a series of challenges to Monogram's practices.

The Utah-based EnerBank is an "industrial bank," rather than a commercial bank. It has no physical branches and conducts all its business by phone transaction.

Industrial loan companies, or ILC's, can offer nearly the same complement of services as regular chartered banks, but with much less scrutiny and oversight.

EnerBank claimed $76 million in fiscal assets and a remarkably small complement of 37 associates at the end of 2005. The bank, currently owned by CMS Energy, will retain its current governance and operating structure after the purchase by Home Depot is complete.

The purchase has renewed concerns about the lack of oversight on industrial banks, initially raised when Wal-Mart made the first of several applications to charter its own bank, using another industrial bank based in Utah.

Consumer advocates and representatives from community banks claim that allowing major retailers like Wal-Mart and Home Depot to charter their own banks would enable them to offer much lower-cost products to their customers, undercutting local competition to the point of putting them out of business.

Although such plans satisfy advocates of the free market, Travis Plunkett of the Consumer Federation of America believes they're also dangerous to the retail giants' customers.

Plunkett told TheDeal.com that ILCs used to lend to a parent company's customers would be pressured to "close the deal," even if the customer had a poor credit history.

ILCs might address the issue with excessively high interest rates and fees, he said, in a manner similar to predatory mortgage lenders.

Wal-Mart's previous appeals to receive its bank charter were rejected by the FDIC. Its current appeal is still pending.

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