Copyright 2004 Newsday, Inc.
SECTION: BUSINESS & TECHNOLOGY; Pg. A25
LENGTH: 1696 words
'Banks to the poor' check-cashing outlets are feeling a squeeze as never before
BYLINE: By Tania Padgett. STAFF WRITER
Ken Connors once had a job - and a bank account - but after losing both, the 47-year-old plumber needed a place to cash his $800 union benefit check.
So there he was one recent morning, walking out of the Pay-O-Matic check cashing outlet in Woodside with a pocket full of bills, minus an $11.20 processing fee.
"I hate paying a premium for my money" at a check casher, Connors said, jamming his hands in his pockets to guard against the biting cold. "But they are convenient, especially for a guy in my position."
Known as "banks to the poor," check cashers like Pay-O-Matic remain a popular alternative for millions of unemployed, low-income and immigrant Americans who rely on them to obtain cash, pay utility bills and purchase money orders.
Nevertheless, shifting financial and regulatory forces are prompting changes in the $1.5 billion industry. Bank mergers, rising costs, mounting competition, widespread counterfeiting and increased federal oversight amid concerns over ties between money laundering and terrorism are conspiring to upend the check cashing industry's phenomenal growth and erode its profits. And that, in turn, could mean higher fees and reduced services for consumers.
"Doing business as a check casher today is probably more difficult than it has ever been," said Hank Shyne, executive director of the Check Cashers Association of New York.
As far back as the 1940s, check cashers have typically attracted customers who live paycheck to paycheck, distrust traditional financial institutions or feel they simply don't have enough money to warrant setting up a bank account.
After flooding the inner cities in the 1980s, though, the cashers drew much criticism from advocates for the poor because of their seedy-looking stores and service fees, which exceeded those of banks.
The industry also was prone to scandal. One of the worst emerged
in 1996 when federal agents closed S & F Check Cashers, a small
But in the past five years, check cashers have struggled to buff their image, spending hundreds of thousands of dollars renovating their stores in hopes of making them look like traditional bank branches, and more attractive to consumers.
Given the improvements, it's not uncommon for check cashers to
attract people like John Griffin, a 51-year-old retiree who resides in Park
Another check-casher customer, Edgar DelaCruz, a 21-year-old part- time student and stock clerk from Woodside, criticizes the fees, calling them unfair. Yet, despite maintaining an account at GreenPoint Bank, DelaCruz relies on outfits such as Pay-O-Matic. "When I go to the bank to cash my check, it takes forever. Here, I'm in and out."
Mounting Costs, Narrow Margins
There are approximately 10,000 cashing outlets nationwide,
collecting $1.5 billion in fees for processing 180 million checks worth $55
billion annually, according to Financial Service Centers of
Nevertheless, check cashers say their profit margins are getting squeezed. The state Banking Department caps the cashing charge at 1.4 percent of the face value of the check, the lowest in the nation. Yet, the firms are paying more to borrow money and to obtain services from traditional banks for everything from clearing checks to supplying armored cars to ferry bags of cash to outlets.
At the same time, rising security concerns have left fewer banks willing to finance check cashers, industry experts said.
Many banks, including FleetBoston
Financial, began breaking with check cashers after the
Joseph Coleman, president of Bronx-based RiteCheck, said that two years ago, a grim-faced Citibank executive showed up at his office and said the bank no longer wanted to do business, after federal officials raised general concerns over check cashers and money laundering. The news proved alarming to Coleman, himself a former Citibank executive. Not only was RiteCheck losing a vital business relationship, Coleman realized that fewer banks were willing to fund the industry.
Coleman said Citibank's decision was all the more perplexing because banks profit by serving check cashers. "We are good customers," Coleman said of his dealings with the bank. "They charge us a tidy sum."
Meanwhile, check cashers also are experiencing increased
financial losses at the hands of counterfeiters, said Shyne
Mergers Taking Their Toll
But perhaps the greatest challenge faced by the check cashing industry stems from the rising tide of big bank mergers.
If a giant lender that does business with check cashers combines with another that doesn't, the merged company typically cuts off the relationship. For example, the industry lost a key partner in 2001 when Uniondale-based European American Bank, a big lender to check cashers, was acquired by Citibank. Check cashers also said Bank of America Corp. will no longer accept their business. Bank of America spokeswoman Ashleigh Adams declined to comment.
Coleman said he finds the trend "chilling." While he managed to obtain services from North Fork Bancorp, which along with J.P. Morgan Chase handles the bulk of check cashing business in the state, he said the switch from Citibank proved disruptive and costly.
"Check cashers rely heavily on banks," Coleman said. "If this trend continues, we could be put out of business."
Sensing an opening, some banks also are looking to grab business
away from the wounded check cashers. Banco Popular
In an attempt to protect their industry's interests, the Financial Service Centers of America, a trade association representing more than 5,000 check cashers nationwide, filed a complaint with the Federal Reserve two weeks ago protesting Bank of America's pending $47 billion acquisition of FleetBoston.
The trade group argued that the merger will reduce the number of banks servicing check cashers and lead to higher financial service costs for low- and moderate-income Americans. "Lessening competition will cause the destabilization of regulated check cashing fees," the complaint reads. "The results will be deleterious to consumers."
The changes have even prompted usually critical consumer advocates to come to the check cashers' defense. They worry that without check cashers as an option, low-income people will resort to other unregulated means to handle their cash, putting themselves at personal and financial risk.
"We would prefer if people went to a bank, because getting a basic banking account is 10 times cheaper than going to a check casher," said Tracy Shelton, an attorney with consumer group New York Public Interest Research Group, or NYPIRG. "But if a check casher is a person's only option, we would be concerned about rising fees. We do not want people falling prey to far more predatory operations."
Higher fees "would hurt a lot of people, who would have trouble finding other places to cash their checks," said Connors. "I know it would give me good reason to go someplace else. I would probably go to a bar or friends if it happened."
An Uncertain Future
Struggling to retain market share against the banks and each other, local check cashers have found innovative ways to combat fraud, attract more customers and keep flush with money.
Matt Bardach, owner of David's
Financial Corp. in
Meanwhile, other check cashers have entered into joint ventures
with credit unions and even banks so that they can legally take in deposits.
Coleman of RiteCheck, for one, has partnered with Bethex Federal Credit Union in the
Stephen Wolf, president of Pay-O- Matic,
the largest check casher in
Still, the industry's long-term outlook remains gloomy, according to Michael S. Barr, an assistant professor at the University of Michigan Law School. An increasing number of consumers are relying on electronic banking - including direct deposit and debit cards - as the issuance of paper checks declines, he said, asserting that "this is not good news for the industry."
But even Barr said he cannot envision a society without check cashers. "As long as there are checks cashed, check cashers will be around."
GRAPHIC: 1) Photo
by Jason DeCrow - Betsy Torres handles a transaction
for Nelson Colon, 41, of the Bronx, at David's Check Cashing in the Bronx.
Check cashing outlets have been spiffed up to look more like bank branches
lately. 2) Newsday Photo / Viorel Florescu
- "I hate paying a premium for my money," Ken Connors says, but
Pay-O-Matic in Woodside is convenient for him. Photos
by Jason DeCrow - 3) Customers wait in line at
David's Check Cashing in the