WASHINGTON (Reuters) -- House lawmakers this week will propose restricting ownership of banks by commercial companies in a legislative push to derail the efforts of retailing giants to move into financial services.

The aim of the new bill is to deliver a loud, clear message to the banking regulator now reviewing applications by Wal-Mart Stores (Charts) and Home Depot (Charts) to buy or form industrial loan companies (ILCs), according to financial lobbyists.

"Expressions of concern by the Congress are frequently useful as regulatory agencies consider whether they're going to approve," said Floyd Stoner, executive director of the American Bankers Association trade group.

Those concerns will be expressed in proposed legislation next week and at a Wednesday hearing planned by a House Financial Services subcommittee.

ILCs have been around since the early 1990s and are chartered by only a few states, most notably Utah, and regulated by the Federal Deposit Insurance Corp. (FDIC).

Wal-Mart wants to open an ILC to process electronic payments from its stores involving credit and debit card transactions, potentially saving it millions of dollars each year.

Home Depot has said its ILC would provide loans for consumers for home improvements.

Both applications face opposition from consumer groups and banks who fear the companies could eventually provide other retail banking services.

The FDIC has given no indication of when it will act on the applications.

U.S. laws historically have sought to separate commerce and banking activities to avoid placing the federal deposit insurance fund - which currently amounts to $49 billion -- at risk if the bank fails. However, an exception now on the books allows commercial firms to own an ILC.

"We'll be introducing legislation to close the ILC loophole," said Steve Adamske, spokesman for Massachusetts Rep. Barney Frank, the top Democrat on the House committee.

Lobbyists said they expect a bill from Frank and Paul Gillmor, an Ohio Republican, to prohibit a company with less than 85 percent of revenue generated from financial services from owning and operating an ILC.

The bill may also bar a commercial company that has not established an ILC by June 1, 2006, from acquiring one.

A separate House bill planned by Iowa Republican Jim Leach would require the Federal Reserve to regulate an ILC's holding company. That would strip the FDIC of most of its power over ILCs and make them subject to Federal Reserve examinations.

"The Fed has decades of experience of doing that," said Steve Verdier, senior vice president of the Independent Community Bankers of America trade group. "They know how to do this. They do it every day."

The Leach bill would give an ILC operating prior to Jan. 1, 2005, a five-year grace period to wind down operations or become part of a bank holding company, experts said.

However, the House legislation is unlikely to become law because it faces opposition in the Senate.

Among those who are strong defenders of ILCs is Robert Bennett of Utah, the second-ranking Republican on the Senate Banking Committee. His state is home to nearly 40 ILCs, according to the Utah Department of Financial Institutions.

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