REFERENCES

rience over tt
favorable. We would
it werent.”

Corus BANK
Michael Lynch
Ist Vice President

“Corus Bank is a relatively small
bank in Chicago with approxi-
mately $2.8 billion in assets. It
services about 560 check cashers
in the Chicago and Milwaukee
area. We clear roughly 1.5 million
checks and 1.5 million money
orders a month generated by the
currency exchanges. We ship
about $240 million in cash a
month. That amounts to about
half a million dollars in fee
income a month for the bank.

12

program. Our 1
Check Casher about

either buy a couple of money
orders, or use their direct bill pay-
ment services, bringing their total
‘banking costs’ to about $10.00 per
month.” I then gave him the anec-
dotal case of a gentleman who just
dropped out of the Secure Check
Program. He joined the “main-
stream’ of banking by opening a
free-EFT account at a bank. Th
would be good, except there was
one small problem; he's not very
good at balancing his check book.

ators are outstanding, successful,
ethical businessmen and we've had
a very good relationship with
them. Their business is very
profitable to Union Bank.

We would welcome any

Check Casher here in Southern
California to go to a Union Bank
office and inquire about opening a
business account.”



As articulated by John Hawke,
then Deputy Under Secretary

for Dornestic Finance of the
Department of the Treasury,
“The role of the non-depositories
is important. Customers may pre-
fer dealing with intermediaries
that are not financial institutions.
Moreover, there is nothing to
prevent nonfinancial intermedi-
aries from partnering with tradi-
tional financial institutions.”*

James Carr, Senior Vice President
of Fannie Mae Foundation echoed
this concept when he recommended
that, “Mainstream financial
institutions can take a lesson from.
and form partnerships with
{non-bank] service providers,
creating efficient operating structures
that lower costs and then pass the
savings on to clients.""

Bank-Check Casher partnerships,
such as Union Bank of California
and Nix Check Cashing, leverage
Check Casher locations in local
neighborhoods bereft of bank
branches. Such points-of-presence
can be used as outlets for depository,
credit, insurance and investment
products, either directly or ona
referral basis.

Check Cashers can function as
vital links with small businesses in
these communities for payroll
services, micro-lending, cash han-
dling, payments and other such
services that would be too costly
for banks to provide directly.

In New York, the State Banking
Superintendent presided over the
launch of a partnership between two
Community Development Credit
Unions and several multi-branch
Check Cashers designed to increase
the availability of financial services to
underserved communities.

Credit Union members can make
deposits and withdrawals at check

cashing stores, just as they would
in a branch or at an ATM. The
Check Cashers can help to sign up
customers for Credit Union
accounts, thereby

encouraging the concept of

thrift in customers that might
otherwise have just kept their
savings in their pockets.

Citibank partnered with the
Financial Service Centers of
America to open electronic
accounts for recipients of federal
benefits. Customers use a debit
card to access funds at ATMs,
rather than receiving a paper
check which then had to

be cashed,

Chase Manhattan Bank, Citibank,
PleetFinancial, Signature Bank,
Sterling Bank, HSBC and the
Bank of New York have partnered
with check cashers in New York,
New Jersey and Connecticut

to provide payroll services for

the employees of the banks’
commercial customers, Employees
get quick, free access to their
funds at hundreds of locations

in the neighborhoods where

they live or work.

Check Cashers are also exploring
ways to provide additional finan-
cial services for their customers,
One program under development
is a stored value card that provides
a safe alternative to pocketing the
entire proceeds of a cashed check.
The card also functions as a pay-
ment vehicle for purchases at
stores with debit terminals.

Know Your Customer

Long before the USA Patriot Act
made it mandatory, “know your
customer” was a hallmark of the
check cashing business. Hundreds
of times each day, a Check Casher
must evaluate his customers and
the checks they present to deter-
mine the legitimacy of transactions.

» Mandatory EFT'99, Financial Aeress tn the 21se Century, February 1, 1997
Financial Services in Distressed Communities, August 2001

Every Check Casher knows that
he is ultimately responsible for the
checks he cashes. If he cashes a
bad check, it will likely come
directly out of his pocket.

Accordingly, Check Cashers closely
scrutinize new customers and
unusual transactions. New customers
must normally produce multiple
forms of identification before they
can cash a check. Even then, most
Check Cashers photograph each
customer and the check being
cashed to minimize potential losses

As payroll checks represent
between 80% and 90% of most
Check Casher volumes, knowledge
of local businesses and their
employees is invaluable in deter-
mining the authenticity of checks,

Although declining, government
checks comprise the next largest
segment of check cashing volumes,
It is rare for Check Cashers to
entertain personal checks, except
for well-established local customers,

Regulation

In 32 states, Check Cashers

are regulated, normally by

State Banking Departments or
Departments of Financial
Institutions. These regulations
include regular examinations and
submission of financial reports.

As of the end of 2001, all Check
Cashers and money service busi-
nesses (MSBs) had to register with
the U.S, Department of the
‘Treasury and to comply with the
Bank Secrecy Act and USA Patriot
Act. Compliance includes mainte-
nance of specific records, periodic
examinations, Title 31 Audits by
the IRS and Currency Transaction
and Suspicious Activity Reporting,

Self Regulation
Check Cashers take their businesses
and their position in the financial



CHECK CASHER PRODUCTS AND SERVICES

The check cashin; S

processes over 180 million che
annually worth over $60 billion
which produce almost $1.5 billion
in fee revenues.

Roughly 80% to 90% of these checks
are payroll checks with an average size
of between $500 and $600.

With the advent of EBT and
Direct Deposit, government
checks, including Social Security,
SSI, and other federal and state
assistance payments comprise a

* PinCEN, NBEI Study, 28 February 1997
"FinCEN, NBFI Study, 28 February 1997

*FinCEN, NBFI Study. 28 February 1997
8

mate g
less per year.’

Processing of Money Transfers
The check cashing industry is

a major processor of money
transfers between workers in the
United Sates and their families
domestically and abroad. Check
Cashers account for roughly 10%
of US money transfers, worth
about $4 billion.

Gree whxchanpe
Foreign exchange is a relatively
new business for many Check
Cashers. However, given the pre-
disposition of foreign workers
have for check cashing businesses,
this service is anticipated to grow
rapidly in line with increases in
these populations.



industry has expe

ten violations of anti-mo'

dering regulations in the last ten
years. An enviable record among
both non-bank and insured finan-
cial institutions.

Agents, Not Principals
However, few Check Cashers

act as principals in transferring
money or in issuing money
orders. Rather most act as agents
for such global companies as
Western Union/ISP and
‘TravelersExpress/MoneyGram.
Therefore, banks concerned about
monitoring Check Cashers for
potential money laundering
should look at the companies for

in maintaining the integrity of
their money transfer and money
order businesses and evaluate
prospective agents to verify their
credibility and responsibility.

Western Union/ISP and
‘TravelersExpress/MoneyGram pro-
vide policies, forms and training
materials to ensure that agents under-
stand how to conduct these money
businesses appropriately, and to take
proactive steps to prevent, detect and
report possible suspicious transactions

used as a guide by the IRS.

‘Ten years before the USA Patriot Act,
The FiSCA Compliance Manual
provided the industry with a com-
prehensive guide to BSA require-
ments. It contained information on
identification of “structuring” and
other money laundering schemes,
currency transaction and suspicious
activity reporting, record-keeping
rea juirements and implementation
SA compliance programs and



services industry seriously. They
comply with a wide range of regu-
lations including the Bank Secrecy
Act. They complete Currency
Transaction Reports on all cash
transactions over $10,000 for a
single customer in a single day,
and maintain detailed records of
all money transfers and monetary
instrument sales in excess of
$3,000. Check Cashers file
Suspicious Activity Reports for
money transfers and monetary
instrument sales wherever appro-
priate, not only to satisfy legal
requirements, but to protect their
investment in their business,

They abide by Codes of Conduct
and Statements of Principles
which they have commissioned
through their trade association,

the Financial Service Centers of
America — FiSCA.

Since the enactment of the USA
Patriot Act, FiSCA has revised and
published two compliance manuals
for the industry - The /iSCA
Compliance Manual: The Check
Cashers’ Guide to Compliance with
the Money Laundering and Bank
Secrecy Act Laws and Regulations,
and The FiSCA Employee
Handbook, The Check Cashers’

112 CR 2282408)

4

Employees’ Guide to Compliance
with the Money Laundering and
Bank Secrecy Act Laws and
Regulations. It also created a
Model Anti-Money Laundering
Program for FiSCA members.

CRA Impact

The Community Reinvestment
Act was created to ensure that
financial institutions met the
financial and banking needs of
individuals and small businesses
in under-served neighborhoods.
In practice, Check Cashers
provide the type of “alternative
systems for delivering retail bank-
ing services. ..in low- and moder-
ate-income geographies and to
low- and moderate-income indi
viduals” embodied in the CRA
Service Test."

Banks’ support of Check Cashers
not only abides by the CRA man-
date to serve small businesses in
underserved communities, but
also facilitates a broad extension
of services to the customers of
check cashing establishments,



WHAT OTHER BANKERS SAY

Southern Ca
ships with one ;
one in Northern Califo



CHECK
ASHERS
BANK

CUSTOMERS

|
)

E CENTERS oF AMERICA, INC,

A NATIONAL TRADF ASSOCIATION



WHO Chee CASTES ARE

assume the entire risk

check will clear. They ma

decision several hundred times a

day, and they charge a fee that

covers not only cost of the services ‘they receive.

transaction, but a portion of + 89% rated FiSCA members as

the risk they bear. “excellent” or “very good” in
offering convenient locations.

Also unlike banks, customers * 88% rated the hours of opera-

pay only for services they use. tion of FISCA member stores as

There are no account maintenance _ “excellent” or “very good.”

fees; no minimum balance * 90% rated FiSCA members in the

requirements; no NSF fees. “excellent” or “very good” catego-

This helps customers manage ry when it came to treating cus-

their personal finances. tomers with respect and courtesy.

9 1994 NY Laws 546.51
10 Community Development, Fal! 2000
‘11 OCC remarks at ABA Nat! Community and Economic Development Conference March 18, 2002
12 US Public Interest Research Group study, 1999
13 FiSCA-commissioned independent research study, Eric Mower and Associates Market and Research Services,
September 2000

10



Merchant Coin and
Currency Services

Tt is not unusual for Check
Cashers to supply bulk coin
and currency services to local
merchants, particularly in
neighborhoods underserved
by commercial banks,

Collection of Automobile
Registration and Public
Housing Authority Rent
Payments

In a number of states, Check
Cashers distribute license
plates and collect automobile
registration fees and rent
payments for public housing.
Check cashing outlets are
frequently more conveniently
located and have longer hours
than DMV and housing
authority offices.

Sale of Lottery Tickets

Owing to their convenient loca~
tions and participation in check
cashing transactions, some Check
Cashers sell a substantive quantity
of state and national lottery tickets.

Income Tax Preparation

Some Check Cashers, particularly
larger chains, have established
partnerships with tax preparation
firms to serve the financial needs
surrounding income tax filing and
refunds for customers without
bank accounts.

Direct Deposit Services

On a national basis, the check
cashing industry partnered with
Citibank to provide direct deposit
services for electronic benefit
payments. Account holders receive
debit cards usable at ATMs and
point-of-sale.

Ona local level, New York's
Check Cashers and some Credit
Unions have teamed up to offer a
wide range of financial services,
including direct deposit, to each
other's customers.

Photocopier and Fax Services
Frequently, Check Cashers are the
only locations where consumers
can make copies of important
papers and send and receive faxes.

Consumer Loans/

Deferred Deposit

About half of all Check Cashers
engage in providing short-term
consumer loans, where allowed
by law. Loans are secured by a
personal check and are designed
to be paid off in full within a
matter of weeks,



auditing procedures. 7he Employee
Handbook provided a hands-on
guide written in language familiar
to employees with testing which
becomes part of an employee's
personnel file,

In June 2002, FiSCA updated all
manuals and guides and issued
The FiSCA Model Anti-Money
Launderirig Compliance Program
Under the USA PATRIOT Act
of 2001 which addressed all
requirements of the Act, including
specific policies and procedures,
appointment of compliance.
officers, independent audits

and employee training.

Further, the check cashing industry
has had a representative on the US
Treasury Department's Bank
Secrecy Act Advisory Group since
its inception.

Back End

On the back end, Western Union/
ISP and TravelersExpress/
MoneyGram have created sophis-
ticated systems that continually
monitor all aspects of their money
transfer and money order busi-
nesses to detect any suspicious,
illicit and/or illegal activities ~ at
the originating and receiving ends.

All transfers are automatically
screened against the various con-
trol lists published by the Office
of Foreign Asset Control (OFAC),
as well as Executive Orders and
other relevant sources to ensure
that transactions do not violate
regulations.

Western Union/ISP and
‘TravelersExpress/MoneyGram also
file CTRs and SARs every time
they spot reportable activity,
adding an additional level of
monitoring to the anti-money
laundering process.

SOCC BSA/AML Handbook, December 2000

Large Debit Misperceptions
Bankers often misperceive that
when a Check Casher's account is
debited by Western Union/ISP or
‘TravelersExpress/MoneyGram for a
relatively large amount that this
means the Check Casher is making
large transfers. In actuality, the
amount of the debit likely repre-
sents many small transactions of
$500 or less. Bankers should actual-
ly see such activity as a sign of a
very healthy check cashing location.

Independent Money
‘Transmitters

Tt is important for banks to distin-
guish between professional Check
Cashers who derive 10% to 122
of their business from money
transfer activities as agents and
independent money transmitters
who derive virtually 100% of
their business from this activity
and frequently do so as principals.
The risk parameters are signifi-
cantly different between the

two businesses.

BSA and Patriot Act Compliance
Out of all the “High-Risk
Businesses”? identified in the
Bank Secrecy Act, including
travel agencies, broker/dealers,
convenience stores, parking
garages, lawyers and accountants,
Check Cashers are undoubtedly
better prepared to monitor
potential money laundering
transactions than all the others.

Out of the seven minimum
elements of compliance for banks
with the USA Patriot Act . . .

+ Establish AML compliance
standards, procedures and

written policies

* Designate high-level personnel
responsible for overseeing compliance
with established standards,
procedures and policies

» Exercise due care not to delegate
substantial discretionary authority
to individuals who might engage
in or be associated with illegal
activities

» Effectively communicate AML
standards, procedures and policies
to all employees and agents and
conduct training that explains
what is required of each

+ Take reasonable steps to achieve
compliance with AML policies

by monitoring and auditing
established programs and systems
* Consistently enforce disciplinary
actions against those failing to
detect offenses

+ Take reasonable steps to respond
to offenses, prevent further similar
offenses, and update AML programs
and policies accordingly

... Check Cashers already
comply with all seven.

Bankers concerned about the incre-
mental expense of and responsibili-
ty for monitoring potential money
laundering and BSA violations by
Check Cashers acting as agents

for companies such as Western
Union/ISP and TravelersExpress/
MoneyGram should not hesitate
to contact the compliance depart-
ments of these firms directly. All
agents have these numbers. on rnate-
rials supplied by the companies.

6


CHECK CASHERS ARE GO!

Although figures vary by stat
store, on average, a bank can
expect a typical check cashing
location to generate in excess of
$21,000 a month in direct service
charges and interest income from
an account maintaining an aver-

. age daily balance of approximately
$100,000.

‘That income would include

some $13,000 from bank fees for
deposit service, check clearing,
return item processing, vault cash
delivery, armored car services and
the like, and $8,000 from funds
availability charges and interest on
credit lines.

OD. BANK CUSTOMERS

aan ai ¥

Settlement with thir

money order companies is
usually accomplished the first
part of the following week.

Checks constitute the bulk of
deposits to operating accounts.
Lots of checks. Checks that a
Check Casher was willing to
advanced his own funds to negotiate.
And key to this business is mini-
mizing returns, currently averaging
less than 1%, 80% to 90% of
which are ultimately collected.

ee Se

of other a a
may be required.
For delivery of vault cash, check

cashers pay banks and/or armored
car services.

Bank - Check Casher
Partnerships

By developing partnerships with
Check Cashers, banks can leverage
additional points of interaction
with customers currently isolated
from their services.



BANCO POPULAR

Bill Ozanie

Vice President

“Banco started providing financing
for check cashers in 1998 a little
over 3.5 years ago.

We see how structured the check
cashing industry is and how
profitable it is and how well-
monitored it is and how the
owners are intertwined in their
businesses. And so we realized
there's a huge positive there.

We went through our BSA
policies and it was worth going
through the exam. It made our
110 stores feel more confident
that we're committed to the
industry and that we understand
what they're doing and how
they operate.

We are serving a community need
that does not exist right now for
low-income, unbankable sector of
the community:

We understand the industry and
the owners understand it and we
know how to service it correctly

and not have any money laundering.

No one’s going to be money
laundering $400 checks
and under.

The bank takes great measures

to ensure compliance under

the Bank Secrecy Act. Notwith-
standing the costs associated with
compliance, we have found our
relationships with our check
casher customers to be positive
and profitable overall. We have
found them to be good, law-
abiding customers, who comply
with both the letter and the spirit
of the BSA. They are subject to
the same anti-money laundering
laws and regulations as banks,
and their record with us has been
very good,”

JouN P. Caskey

Professor of Economics
Swarthmore College, and
noted expert on "Banking the
Under-banked"

“To the extent that check cashing
outlets can function as low-cost
replacements for bank branches,
this could substantially cut banks’
operating costs. Not only could
the Check Casher handle many
consumer banking transactions,
but it may also be able to meet the
payment needs of many of the
bank's local business clients.
Bank/Check Casher hybrids could
benefit bank and Check Casher
customers. Check Casher cus-
tomers would have convenient
access to financial savings services
and bank customers could gain
additional locations in which to
conduct their business.

I think it is likely that bank/
Check Casher hybrids will be
successful and become more
common. The driving factor will
be the opportunity to augment
the revenues of both businesses
without increasing their expenses
commensurately. Check cashing
outlets are probably better
designed to offer banking services
than are most branches to offer
check cashing services, so
partnerships could save banks
significant infrastructure costs.
In addition, a Check Casher
partner would provide a bank
with an immediate source of
knowledge of knowledge of

the check cashing business.

Check cashing outlets will likely
augment their revenue by becoming
agents for banks, taking deposits,
dispensing cash, assisting with
loan applications, and meeting the
payment needs of a bank's local
business clients.”

MERCHANTS BANK OF CALIFORNIA
Daniel Roberts
Chairman/Chiet Executive Officer

“Merchants Bank of California,
N.A. has been serving the check
cashing industry in Southern
California since the Bank was
purchased by a local check casher
in 1994. We serve approximately
150 Check Cashers. Serving this
industry is the Bank's primary
focus, and has represented a
substantial source of fee income
for the Bank.

According to the July 2002
edition of the ABA Banking
Journal, over the last 5 years
Merchants Bank of California,
N.A. has the highest Return on
Assets for all 4,984 banks in the
United States under $100 million
in assets.

‘That's why we serve the check
cashing industry.”



check cashing loca
bank branches.

Most of these customers are hard-working men and wo

whom live from one paycheck to the next and need immediate'acet
cash to satisfy their financial obligations. They use check cashers to
obtain those specific services they need and. they pay only for what they
use. In this way, it is more accurate to view them as “Self-Banked”
rather than “Un-Banked.”

This book is designed to acquaint bankers with the check cashing
business and to demonstrate how Check Cashers are good bank
customers, as successful businesses and as partners to distribute
financial services to many under-served communities.

"Throughout this portfolio, che term Check Casher refers to check cashers, community currency exchanges and

similar establishment

1



TABLE OF CONTENTS
Introduction .....6 06. e erect eee ee es 1

Check Cashers Are Good Bank Customers... 6.00561 reer reer ereees 2
Check Cashers Do Not Launder Money
What Others Bankers Say

Check Casher Products and Services

Who Check Cashers Are

Who Check Cashing Customers Are

References... . 0.0 sree eee e eter reeeeee 12

Dispelling the Check Exposure Liability Myth.

Dispelling the Money Laundering & Monitoring Myths

Dispelling Other Myths

Acknowledgements:
fe wish to acknowledge the help and assistance of the following people
Who contributed to the review of this document prior to its publication:

William Siegel Daniel Roberts

Chairman, FiSCA Chairman/Chief Executive Officer,
Steve Wolf Merchants Bank of California
Treasurer, The Pay-O-Matic Corp. Larry Slonina

Joseph Coleman President, U.S. Advisory Services, Inc.
"President, Rite Check Cashing, Inc. Henry F.Shyne
Richard Klein Executive Director, FISCA

President, Garden State Check Cashing Robert N. DeChillo

Service, Inc. Membership/Business Development
Jim Ball Director, Fi.
Vice President, FISCA And the entire FiSCA staff

Steven Hanson
President, Cash Connection


WHO CHECK CASHING CUSTOMERS ARE

The general assumption about the
customers of Check Cashers is
that they are poor, unfortunate
people who frequent these estab-
lishments because they are unin-
formed and have no other choices.

But that is far from true.

Since 80% to 90% of the checks
presented for cashing are payroll
checks, most of these customers
are gainfully-employed."' Like
many workers in today's economy,
however many live frorn paycheck
to paycheck. Every cent is precious
to them. And, they consciously
seek out the best way to obtain the
financial services they need.

Far from being ignorant of

bank offerings, research indicates
that over half of check cashing
customers had previously had a
bank account.'® Many still do.

But with minimum balance
requirements, monthly mainte~
nance fees, per check charges,
bounced check fees and other
such costs, most Check Casher
customers simply find bank
accounts too expensive and too
hard to manage for the amount of
money at their disposal.

And some people just like cash.
They can look inside their wallet
and know exactly how much
money they have.

According to surveys cited by the
Comptroller of the Currency,
“the principal reason people give
for not having a bank account

is that it costs too much for

their needs.”'°

Tt is more than just a subtle
distinction to see that these
customers are not “un-banked”,
but rather “self-banked.”

Consumers using check cashing
facilities instead of banks do not
necessarily consider themselves
disadvantaged. As observed by
Richard Harnack, chairman of the
Consumer Bankers Association
and Vice Chairman of Union
Bank of California, “this population
is not really underserved, it is
merely served differently. "!”

Most banks do not cash checks for
nion-customers. Even with a bank
account, a depositor must have a
sufficient balance to cover all or
most of the check or the bank will
not cash the check until it has
cleared. If a customer wants his
money immediately, he must go
to a Check Casher.

Similarly, most banks will

not transfer money for rion-
customers. To move funds, 60%
to 70% of self-banked consumers
purchase 10 or more money
orders a year. Banks norrnally
charge $1 to $3 for money orders,
while Check Cashers usually
charge $1 or less.

Many self-banked customers —
individuals and businesses - have
learned to use money orders as a
secure alternative to a bank
account for saving excess cash.
And, unlike banks, Check Cashers
accept payments for many utilities
and sell stamps and envelopes in
which to mail payments to others.

Last, but perhaps more important,
many check cashing customers are

4 Survey of Non-Bank Financial Institutions for the Department of the Treasury, Aprit 2000 pg 37
§ OCC analysis of FRB 1992 Survey of Consumer Finance
OCC romarks to ABA Community and Economic Development Conterence, March 18, 2002

" Financial Access in the 2lst Century, Feb 11,1997

8 Survey of Non-Bank Financial Institutions for the Dopartment of the Treasury, Aprit 2000
¥ Customer Satisfaction Research, Eric Mawer and Assoc., September 20t

=|

uncomfortable dealing with
insured financial institutions.
They feel self-conscious of the
amount of money they have, their
language skills, their education,
their documentation -- and they
fear rejection. Frequently, they
feel that bank records may
compromise their privacy.

As aresult, check cashing
customers handle their financial
needs by cashing their paychecks,
purchasing money orders, paying
bills and transferring money ona
fee-for-service basis, rather than
from a depository account. They
do so in conveniently located
stores, at hours that suit their
lifestyles, with a minimum of docu-
mentation, with service people that
reflect the culture, language and
customs of the neighborhood."

All of these factors explain why
Check Cashers can thrive even in
neighborhoods where bank
branches exist.

Tn fact, according to a 2000
survey, some 58% of check
cashing customers had a checking
or savings account with a bank or
credit union. Among the reasons
these customers listed for using
Check Cashers were being treated
with respect and courtesy, availability
of products and services they
needed, convenient locations, a
safe environment, employees that
really tried to help, convenient
hours of operation and ability to
get in and out quickly."

Out of all customers surveyed,
roughly half said they would use a
savings product if it were available
from their Check Casher,

I


Dispelling the Check
Exposure Liability Myth

Myvi: The checks deposited by

Check Cashers expose banks to greater
liability of uncollectible funds than
other similar retail businesses that
handle large volumes of cash

and checks.

TrurH: Banks provide cash to Check
Cashers by permitting them to draw
against uncollected funds, e.g. checks
that have been deposited but have not
yet cleared. Banks typically treat the
major portion of these checks as cash,
with the remainder considered advances
against a credit facility until the checks
clear. These loans are secured primarily
by the underlying checks. In some cases,
pledges of other assets and/or guarantees
may be required,

Key to the check cashing business is
minimizing returns, currently averaging
less than 1%, 80% to 90% of which are
ultimately collected,

Check cashing business are historically
profitable and bankruptcies, defaults or
failures are rare.

Dispelling Money
Laundering &
Monitoring Myths

Myri: Check cashers are “high risk”
accounts because of their potential
role in money laundering.

‘TRUTH: The basic business of Check
Cashers is cashing checks, primarily
issued by local corporate employers and
goverriment agencies. As this is disbursing
money, not transferring it, FinCEN

has recognized this model as being
incompatible with money laundering,

Check Cashers that do money transfers,
are licensed and act as agents of major
companies such as Western Union or
MoneyGram, who monitor all payments

for money laundering, Check Cashers
file SARs and CTRs with IRS.
where applicable.

Additionally, FiSCA members have
adopted a national Code of Conduct
specifying ethical standards for the
industry; created a Statement of
Principles committed to vigorously
combating money laundering; commis-
sioned an anti-money laundering manual
for the industry and conducts anti-
money laundering educational seminars.

In practice, the check cashing industry
has experienced less than ten violations
of anti-money laundering regulations in
the last ten years, An enviable record
among both non-bank and insured
financial institutions,

Mytni: The cast of monitoring

Check Cashers for Money Laundering
activities is greater than other similar
retail businesses that handle large
volumes of cash and checks.

TruTH: Banks that support the check
cashing industry have developed efficient
and cost-effective models to monitor
Check Casher accounts that have met the
requirements of the BSA and Patriot Act
in regular examinations. See References
page 12.

Dispelling Other Myths

Mytu: Check cashers charge high fees
(a unsuspecting consumers.

TRUTH: Check cashing fees must cover
several costs of doing business, including,
cash handling, check clearing, transaction
processing and risk management.

Unlike banks, Check Cashers bear the
risk of collecting against all checks, rather
than having a right of offset against
deposit accounts,

In 32 states, Check Cashers are
regulated, normally by State Banking,

© OCE remarks to ABA Natt Community and Econoniie Development Cont, Mar 18, 2002

Customer Satisfaction Research, Eric Mower and Assoc.,

eotemiber 2000

© OCC remarks to ABA Natt Community and Economic Dovelopmenc Conf, Mar 18, 2002

Departments or Departments of
Financial Institutions.

Ina 2000 nationwide survey, 81% of
FiSCA member customers rated the
service they received as “excellent” or
“very good.”

According to the OCC, “.. . most banks
charge more for the same services, ..the
average minimum balance required to
avoid fees for checking accounts at large
banks was $616. Consumers who were
unable to meet that minimum,.,paid an
average of $218 a year, or $18 a month
Indeed, earlier surveys have strongly
indicated that the principal reason people
give for not having a bank account is that
it costs too much for their needs."

MyrH: Check cashers prey an
unsophisticated consumers who have
no other alternatives.

TruTH: Check Cashers provide basic
financial services to millions of Americans.
who prefer their fee-for-service delivery to
deposit-based, relationship banking.

Tn fact, an estimated 60% of customers
have or have had bank accounts, but
choose to use check cashing stores for
immediate cash access, convenience and
other practical reasons.”

According to the OCC, “[unbanked
consumers] have turned away from
banks — or have been turned away by
banks — in obtaining at least some of the
financial services they regularly need."

Additionally, Check Cashers have
instituted many programs that give back
to their local communities, including
scholarship programs, school uniform,
programs, and the like.

FINANCIAL SERVICE CENTERS oF AMERICA, INC,

A WATIONAL TRARE ASSDETATION

25 Main Street. Court Plaza North, PO. Box 647, Hackensack, NJ 07602

tel 201.487.0412

fax: 201.487.3954 www.fisca.org,

(©2002 Published by FISCA, Designed and Prodwcod by Grafieo In: