March 18 (Bloomberg) -- The U.S. House of Representatives passed a bill repealing federal banking laws that regulators called ``outdated'' and burdensome to financial institutions from large banks like Citigroup Inc. to smaller community lenders.

The House also amended the bill to block Wal-Mart Stores Inc. and other retailers from buying industrial loan companies, which are similar to banks, and putting branches in their stores across the U.S. The amendment was sought by community banks concerned that Wal-Mart's 3,300 stores would give the world's largest retailer an unfair advantage.

The bill will let U.S. banks, thrifts and credit unions offer ``more products and provide a higher level of service to customers,'' Representative Michael Oxley, an Ohio Republican and chairman of the House Financial Services Committee, said during the House debate in Washington.

The bill, approved on a 392-25 vote, now goes to the Senate, where Senator Richard Shelby, an Alabama Republican and chairman of the Senate Banking Committee, has said he hopes the chamber can pass a ``regulatory relief'' bill for banks later this year.

The House bill would make it easier for banks to branch across state lines; exempt thrifts and credit unions from registering with the Securities and Exchange Commission; permit credit unions to provide check cashing and wire transfer services to anyone eligible to be a member; and let banks pay interest on business checking accounts.

Divided Industry

The banking industry was divided on the bill. The American Bankers Association, a trade group representing banks of all sizes, didn't back it because of the credit union provisions, but didn't lobby against it, said spokeswoman Laura Fisher.

America's Community Bankers, a trade group whose members mostly have assets less than $1 billion, supported the bill ``because we think there are some good things in there for community banks,'' said Charlotte Bahin, senior vice president for regulatory affairs. She said the group hopes the Senate will drop the credit union provisions.

The House adopted an amendment by Representatives Paul Gillmor, an Ohio Republican, and Barney Frank, a Massachusetts Democrat, that would require an owner of an industrial loan company branching across state lines to get at least 85 percent of its annual gross revenue from financial operations.

Industrial loan companies approved for insurance by the Federal Deposit Insurance Corp. before Oct. 1, 2003, would be exempted from the 85 percent revenue threshold as long as their ownership doesn't change.

Wal-Mart Rule

Bentonville, Arkansas-based Wal-Mart would be ruled out because it didn't have an industrial loan company before last Oct. 1 and doesn't get 85 percent of its revenue from financial operations.

Gillmor said the amendment ``closes a dangerous loophole'' that would let retailers, such as Wal-Mart or Target Corp., get into the banking business with less regulation than applies to standard banks.

``The risks associated with mixing banking and commerce are real,'' Gillmor said.

Federal Reserve Chairman Alan Greenspan is among those who oppose allowing commercial businesses to own industrial loan companies, saying it would blur the longstanding U.S. separation of banking and commerce. Industrial loan companies can take deposits and make loans as banks do. Unlike banks, they can be owned by commercial businesses.

Wal-Mart spokesman Gus Whitcomb didn't return a call seeking comment today. Last year, when the issue of industrial loan companies was debated by the House Financial Services Committee, Wal-Mart spokesman Tom Williams declined comment on the proposed law or its possible effect on Wal-Mart's business.

``We don't own any banks, so we don't have a comment on it,'' Williams said. ``We don't speculate on what we may or may not do.''

Credit Unions

The bill also would permit credit unions that buy private deposit insurance instead of getting it from the National Credit Union Administration to become members of a Federal Home Loan Bank, where they could borrow money at lower rates and have more to lend. Currently, only credit unions insured by the NCUA can join the FHLB.

The provision would provide potential new customers for American Share Insurance of Dublin, Ohio, the only U.S. company that sells private deposit insurance for credit unions. Ohio is the home state of Oxley, whose House Financial Services Committee drafted the bill.

Representative Paul Kanjorski, a Pennsylvania Democrat, opposed that provision in committee. He said privately insured credit unions could escape federal oversight, and private insurers might not be able to handle a wave of credit union failures.

The House-passed bill also would permit the FDIC to use optical or computer scanned images in place of photographic copies of originals as is now required. The current law dates to the 1950s and doesn't recognize modern technology, the FDIC said.

The bill also would:

-- Exempt thrifts and credit unions from having to register as broker-dealers and investment advisers with the SEC, giving them the same status as banks.

-- Increase to 15 years from 12 years the limit on the length of loans that federal credit unions may offer.

-- Ease limits on auto and small business loans by thrifts.

To contact the reporter of this story: Bill Arthur in Washington barthur@bloomberg.net.

Last Updated: March 18, 2004 14:17 EST