Statement of 

 

GERALD GOLDMAN 

General Counsel 

Financial Service Centers of America 

 Before the 

U. S. House of Representatives 

Committee on Financial Services 

Subcommittee on Financial Institutions 

And Consumer Credit 

 Regarding 

Bank Secrecy Act’s Impact on Money Services Businesses 

 

Washington, D.C. 

 

June 21, 2006 

 

 

 _____________________________________________________________________________ 

www.FISCA.ORG

NATIONAL HEADQUARTERS: COURT PLAZA SOUTH, EAST WING • 21 MAIN ST •PO BOX 647 •HACKENSACK, NJ 07602 •TEL. 201-487-0412 

 • FAX 201-487-3954 

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Mr. Chairman, Members of the Committee, my name is Gerald Goldman. I serve 

as General Counsel to the Financial Service Centers of America (FiSCA). I thank you 

for the opportunity to appear today to present our views with regard to the alarming 

number of banks making wide-scale terminations of their check casher customers. 

Those views will provide you a description of the serious plight of our industry, the 

tremendous efforts we have made thus far to find a solution to the problem, and the 

apparent indifference we continue to experience on the part of most banks and some 

federal regulators. 

FiSCA is the national trade association representing over 6,000 neighborhood 

financial service providers throughout the United States. FiSCA’s members provide 

non-traditional financial services including check cashing, funds transfers, money orders 

and utility bill payment services. We serve millions of customers, both banked and unbanked, who use us for the advantages that we provide: convenient access, service and 

the ability to obtain instant liquidity. The most important service that we offer is a place 

for hard-working people to cash their paychecks, a necessary service that they cannot 

always obtain at a bank, or choose not to. We serve customers from all walks of life, 

including urban communities and the under-banked, groups that the Financial Crimes 

Enforcement Network (FinCEN) and the federal banking agencies have stressed as 

being underserved by more traditional financial institutions. 

U.S. Treasury Secretary John Snow acknowledged last year in an address to the 

Florida Bankers Association, that money services businesses (MSBs) “are key 

components of a healthy financial sector, and it is very important that they have access 

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to banking services.” We are very much a part of the fabric of a healthy economy, yet 

our industry remains in peril. 

As we have reported time and again, the MSB industry is experiencing a growing 

crisis of banks making wide-scale terminations of their accounts. In the State of New 

York, for example, there are some 640 licensed check cashers which last year cashed 

35,687,745 checks with a total value of $15,509,239,471. Fully 87% of the state’s 

check cashers are now served by only two banks. If one of those banks should 

terminate, the result may be disastrous. (One has already terminated its licensed 

money transmitters.) Other areas are experiencing similar trends. Moreover, of the 

banks that continue to serve the industry, many are refusing new accounts, or are 

placing onerous requirements on the accounts they currently maintain. 

The MSB and banking industries are in agreement that the problem stems from a 

perception by federal bank regulators that check cashers and other MSBs are 

“high risk” for money laundering and financial crime. The trend gained momentum in 

2000 following the OCC’s issuance of a BSA Handbook and an advisory letter (Advisory 

Letter 2000-3) placing check cashers and other MSBs in high risk account categories. 

As a result of this guidance and heightened attention to anti-money laundering following 

passage of the USA Patriot Act, coupled with existing prejudices, federal bank 

examiners have been exerting undue pressure on banks servicing the industry. There 

is no question but that banks are required to expend greater resources in maintaining 

MSB customer compliance and monitoring systems, which has directly impacted the 

profitability of servicing this market sector. Banks have decided to invest resources in 

more profitable business lines. In some instances banks have terminated check 

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cashers due to direct criticism from bank examiners. In some cases the decision has 

been due to nebulous “reputational risk” concerns. In many cases banks refuse check 

cashers simply because we are MSBs; to be labelled an MSB is to be branded with a 

scarlet letter. 

The high risk designation is a red herring. FinCEN, IRS and numerous state 

officials have publicly acknowledged that there is no palpable money laundering 

problem within the regulated check cashing industry. Moreover, significant government 

oversight of the industry presently exists. As MSBs, check cashers must register with 

the federal government and are subject to periodic IRS examination. In many states, 

check cashers are required to be licensed, and must undergo background screening 

and financial review. Licensing authorities typically impose recordkeeping and reporting 

requirements, and subject licensees to periodic examination by state (often banking 

department) examiners. As the result of recent Memoranda of Understanding between 

FinCEN and the various states, information gathered in examinations of check cashers 

is now shared between IRS and state authorities. Notwithstanding our objectively low 

risk profile, we continue to suffer discrimination and account terminations. 

There is a consensus among FinCEN and the federal banking agencies that a 

bank discontinuance problem clearly exists, and that termination of MSB accounts is not 

in the interests of national security, and threatens access to financial services in urban 

communities and to the under-banked. Notwithstanding a clear acknowledgment of the 

problem, a regulatory solution has not been achieved and the terminations are 

continuing unabated. 

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We have worked long and hard to find a solution to the problem. I first reported 

the emergence of a bank discontinuance problem to FinCEN in November of 2000. 

Since that time, we have met with federal and state legislators, we have suggested 

legislation, we have written letters to scores of banks, we have met with FinCEN, OCC, 

and other bank regulatory agencies. We have testified before congressional subcommittees; in May of 2005 I testified on the issue before the U.S. Senate Committee 

on Banking, Housing and Urban Affairs. We have proposed that Treasury form an 

advisory group made up of representatives of the federal banking agencies, banks, and 

MSBs, for the sole purpose of ensuring access to banking services. More recently, we 

met with the American Bankers Association and other banking groups to develop a 

unified strategy. We have even called for a moratorium on MSB account terminations 

until a more permanent solution could be found. We have seen some progress; we 

were encouraged when FinCEN held hearings on the issue in March of 2005, and 

spearheaded the issuance of the April 26, 2005 Interagency Interpretive Guidance on 

Providing Banking Services to Money Services Businesses (the “MSB Guidance”). 

Unfortunately, any progress thus far has been illusory. 

All of our efforts and the efforts of FinCEN have been for naught. No major 

banks that previously terminated their MSBs have returned to the industry. If anything, 

last year’s MSB Guidance has merely exacerbated the situation; many banks view the 

MSB Guidance as just adding to the regulatory load in serving MSBs, and some banks 

have terminated their check cashers as a result of the Guidance. 

It is time for either absolution or compulsion. We must either absolve banks of 

their obligation to act as the functional regulators of their check casher customers and 

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free them of their current regulatory burdens – or we must compel them to stop 

discriminating against this industry. It must be recognized that regulatory efforts will not 

work because even with regulatory reform, many banks have become so intransigent in 

their position that they are writing off the entire industry. Absent a lifting of the 

regulatory burden, the only way to resolve the problem is to compel banks to refrain 

from discriminating against this industry. Nothing short of a statutory solution will bring 

the banks back because this is discrimination. It is time to stop the charade. This 

situation requires legislative intervention. 

We appreciate the efforts and support of the American Bankers Association on 

this issue, but we see no evidence at all that the banks that need to listen are getting 

the message. At our Annual FiSCA Conference in September 2005, we hosted a Bank 

Forum, the purpose of which was to bring together key players from the MSB industry, 

banks and regulators in an effort to improve relationships and address the 

misimpressions that serve to perpetuate the problem. Not one single bank that has 

terminated its MSBs agreed to attend. 

Recently, an “Underbanked Financial Services Forum” was held in Chicago, at 

which numerous panel discussions explored the ways that banks can better serve the 

under-banked, a group that is now perceived as the next growth market for the banking 

industry. It is no small irony that while banks now see a value in serving the underbanked, banks are at the same time denying us the opportunity to serve this same 

group. 

From the inception of this problem to today, banks have been reluctant to step 

forward and testify, as evident from their absence from any of the hearings and forums 

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on the issue. In truth, at no point during this ongoing situation have any of these banks 

come forward to either defend their position, or work with us towards a solution. 

As we have previously proposed, because of the deep seated bias that now 

exists a legislative approach may be required. We must mandate that financial 

institutions may not discriminate against check cashers solely on the basis of their 

status as MSBs, or due to alleged “reputation risks.” Additionally, legislation should 

impose a requirement that a bank may only terminate an MSB customer for cause. 

Alternatively, there must be a paring down of the regulatory burden on banks 

servicing the MSB industry. What is needed is legislation which gives force to the policy 

in the MSB Guidance that banks “will not be held responsible for their customers’ 

compliance with the Bank Secrecy Act” or other regulations. Banks should be relieved 

of the burden of reviewing the compliance programs of their licensed and registered 

check casher customers. MSBs are already subjected to several levels of oversight by 

IRS and, in many cases, their state regulator. Banks should not be required to conduct 

their own redundant and costly review and monitoring of customer BSA compliance 

programs. 

As suggested by prominent banking industry representatives, a more reasonable 

alternative would be a cross-industry practice whereby the MSB would provide primary 

compliance information (i.e., state license and MSB registration) to its bank, together 

with a certified statement by the MSB to the effect that the MSB does maintain 

appropriate BSA policies, procedures and controls. This self-certification, together with 

existing regulatory oversight by IRS and state regulators, should expressly relieve the 

bank of further due diligence obligations. FiSCA supports a certification process. We 

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agree that the MSB customer must take responsibility for its compliance obligations, 

and must be able to certify to its depository that it maintains appropriate controls. We 

are in accord that banks should be relieved of this burden, including the attendant costs 

and regulatory exposure. 

Both the banking and MSB industry have also suggested legislation that would 

limit enforcement actions against banks that service MSBs in good faith. Although 

regulators express a reluctance to grant any form of “safe harbor,” there is little question 

but that administrative enforcement actions against banks have had a chilling effect on 

access to depository services to the MSB industry. In one notable example, a multimillion dollar penalty was assessed against a Florida bank due to the bank’s internal 

BSA deficiencies. Although the bank also served many check cashers, none were 

implicated in connection with the bank’s regulatory violations or internal compliance 

deficiencies. Nonetheless, the bank responded to FinCEN and FED sanctions by 

terminating its check cashers, a result clearly not intended by the enforcement action. 

In short, banks should not be held responsible for the compliance deficiencies or 

potential illegal activities of their MSB customers, however rare. Legislation is needed 

to provide that a bank that services check cashers or other MSBs in good faith will not 

face administrative enforcement action for the compliance lapses of its customer. 

Although bank and non-bank financial institutions cannot remain willfully blind to 

suspicious activity, banks should not be held accountable for the conduct of their check 

casher customers occurring outside of the depository relationship. 

Additionally, there is a need for legislation expressly removing regulated check 

cashers from the category of “high risk,” and imposing a presumption that such 

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accounts are “low risk.” Before 2000, there were few problems between check cashers 

and the many banks that served them. Check cashers and other MSBs were simply 

among the numerous commercial customers regularly and profitably served by their 

depositories. The shift in climate was not the result of a rash of money laundering 

convictions among check cashers. There is no legitimate nexus between the current 

trend and money laundering within our industry. To our knowledge, no check casher 

has ever been implicated in a terrorist financing situation. 

Likewise, we are unaware of any situation where a bank has been penalized due 

to money laundering or BSA violations by its check casher customer. Nonetheless, the 

tendency among federal bank examiners has been to treat all MSBs as high risk. With 

respect to the regulated check cashing industry, this presumption is inaccurate and 

damaging. As compared with other financial sectors, the industry’s BSA enforcement 

record is quite good. Although the FinCEN website lists many multi-million dollar civil 

penalties against banks and other financial institutions, there have been only a few 

assessed against check cashers – and only one since 9/11. Moreover, since passage 

of the USA Patriot Act, IRS has greatly increased the number and scope of Title 31 

compliance examinations, yet we have not seen a corresponding increase in BSA 

enforcement actions within the industry. The record shows that the regulated check 

cashing industry is not high risk for money laundering, and this fact must be driven 

home to the bank regulatory agencies that are compelling banks to terminate our 

accounts. The “high risk” label must be eliminated. 

Other solutions to the bank terminations problem have been proposed by various 

industry leaders. Some have suggested that the current crisis could be alleviated by 

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granting MSBs direct access to depository accounts at Federal Reserve Banks, placing 

MSBs on par with credit unions and savings and loans. Others have suggested that a 

Community Reinvestment Act (“CRA”) type process be implemented to determine how 

well banks are servicing the MSBs in their area, or, alternatively, granting CRA credits 

to banks that continue to service this industry. FiSCA is fully supportive of both of these 

concepts. 

In sum, the current regulatory regime is not catching more criminals, but is 

harming scores of legitimate businesses and the customers they serve. Further 

regulation simply is not the solution. Regulators on all sides agree that bank 

discontinuance is a problem, but the fact is that there is not a sufficient resolve among 

the banking agencies to forge an inter-agency regulatory solution. As we have seen, 

FinCEN’s recent attempts to bring relief to the situation have not been successful. 

Whether due to fear of regulatory reprisal, or indifference, banks are still not coming to 

the table. We are at a point now that a legislative solution, providing either absolution or 

compulsion, is the only solution. 

 We appreciate the opportunity afforded us to testify before you today with respect 

to this very important issue. We hope that the Subcommittee will consider favorably our 

recommendations. We remain committed to continuing to work with the Subcommittee 

and all interested parties in this regard. 

 Thank you. 

 Gerald Goldman 

 General Counsel 

 Financial Service Centers of America 

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Gerald Goldman 

General Counsel 

Financial Service Centers of America 

Gerald Goldman has served as General Counsel for the Financial Service Centers of 

America, Inc. from 1987 to the present. He is also General Counsel for the Check 

Cashers Association of New York, Inc. (1986 to present) and the New Jersey Check 

Cashers Association (1979 to present). He is a partner with Winne, Banta, 

Hetherington & Basralian, P.C. in Hackensack, NJ. 

Goldman was appointed by New Jersey Governors Byrne and Cahill to the State 

Commission on Regulatory Efficiency and the State Law Enforcement Planning 

Commission from 1973 to 1978. In 1993, he was appointed by the Financial Crimes 

Enforcement Network (FinCEN), an agency of the US Treasury, to serve as a member 

of the Bank Secrecy Act Advisory Committee for eight years. 

Goldman is one of today’s foremost authorities on the bank discontinuance issue and its 

effect on the financial services industry. To this end he testified at the joint meeting of 

nonbank institutions and examination subcommittees of the Bank Secrecy Act Advisory 

Group in March, 2005. He also testified on this topic before the US Senate Committee 

on Banking, Housing and Urban Affairs in April, 2005. He has been a participant in 

numerous industry panels and discussions and has written extensively on the bank 

discontinuance problem over the past several years. 

In addition to his distinguished career in financial services, Goldman served two terms 

as the mayor of Passaic, NJ from 1971 to 1978. He received his Bachelor’s degree from 

the University of Vermont (1956) and his J.D. from New York University in 1959. 

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