Toyota shifts gears in a strategy to build new banking business.

Toyota Motor Corp., Japan's No. 1 automaker, is starting to flex its financial muscle in California by offering real estate loans and deposit accounts to its Toyota and Lexus dealers, part of a plan to eventually sell a wide array of banking products to the general public.

Toyota won approval last month from the California Department of Financial Corporations to expand the electronic payment processing and marketing functions of Toyota Financial Savings Bank, its full-service bank that opened last year near Las Vegas.

Toyota is essentially 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 financial institution in the state, and it has revived debate about commercial corporations owning banks.

Toyota's recent application with state banking officials allows some functions for its Nevada bank to be processed at its Torrance campus.

"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."

Toyota already offers a variety of 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.

Toyota began a Lexus credit card in June. Other loan products will be rolled out in the next few months and will soon be available to the carmaker's customers.

Toyota, Volkswagen, BMW North America LLC, Target Stores Inc. and Pitney Bowes Inc. are among the corporations that have received industrial bank charters in Nevada and Utah. Just seven states, including California, 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 cross-sell financial products and services to their existing customers and maintain brand loyalty.

Bankers' concerns

Independent community bankers have been lobbying Congress to debate the merits of allowing commercial enterprises to open their own banks. The two types of institutions are subject to different regulatory requirements.

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 has not yet been approved.

Though Wal-Mart has stated it only plans to process credit and debit card charges, bankers fear the world's largest retailer will open branches at its stores, further increasing competition.

A coalition formed to keep the Bentonville, Ark.-based retail giant 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 are also interesting in selling bank products. "One of the questions customers ask us is why didn't we open a bank in California?" said Specht. "The only states available are Nevada and Utah."

Karen Thomas, executive vice president for government relations at the Independent Community Bankers Association, 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 FDIC-insured banks that were first established 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," said Thomas. "We are strong supporters of the separation of banking and commerce."