Copyright 2004 American Banker, Inc.

The American Banker


August 20, 2004, Friday




LENGTH: 967 words


HEADLINE: FDIC-Insured Deposits, via Check Casher





A trade group representing check cashers says it is getting ready to introduce an interest-bearing, federally insured deposit account that would be linked to existing prepaid debit cards popular with the unbanked and low-income consumers.

Financial Service Centers of America says the hybrid debit/deposit card would offer customers a convenient savings vehicle and help the image of an industry with a reputation for exploiting the poor.

Gary A. Dachis, the president of Unbank Co. of Minneapolis and the chairman of Financial Services Centers of America, better known as Fisca, said the card could be unveiled as early as Oct. 9 at the group's national convention in Puerto Rico.

"We're working to finalize the details, but we're very excited about this," Mr. Dachis said. "It's definitely moving along."

He and other Fisca officials acknowledge there is no guarantee that people living paycheck to paycheck would be interested in saving even small amounts. But they say their planned card would provide the best opportunity to do so, and a former Treasury Department official who helped develop the Clinton administration's First Accounts savings program, said they might be right.

Linking a deposit account to a debit card is "a good idea," said Michael S. Barr, who from 1997 to 2001 served as deputy assistant secretary of the Treasury for community development policy.

Now an assistant professor of law at the University of Michigan Law School, Mr. Barr earlier this year published a 121-page paper entitled "Banking the Poor" in the Yale Journal on Regulation that said any viable plan to bank the poor had to include low-cost electronic banking products.

In that respect, Mr. Barr said, the check cashers' debit/deposit card sounds "encouraging."

"I'd have to see the details, but this could be a significant" development, he said.

Perhaps the best indication of the potential for such a product is that people seem to be using the check cashers' existing prepaid debit card to save, even though it pays no interest and offers no deposit insurance.

Consumers can get the debit card, a MasterCard product offered by NetSpend Corp. of Austin, at participating check cashing outlets. They activate, or "load," the card by giving the check casher an amount of money that becomes their credit limit. As that sum is drawn down, they can go back to the check casher to reload the card.

Joseph Coleman, the president of RiteCheck Cashing Inc. of New York and a member of Fisca's board, said the group decided to create a deposit product when it realized that people were building up unspent balances on their prepaid debit cards.

"The residual balances are steadily creeping up," Mr. Coleman said. "Even without interest payments, people are using this as a savings vehicle."

Banks and credit unions -- often under prodding from regulators and community activists -- have been trying to reach larger numbers of the unbanked. So far, however, they have had limited success.

For example, Mr. Barr said another Clinton-era program for low-income consumers, Electronic Transfer Accounts, which pays institutions to open deposit accounts for the recipients of federal benefits, has resulted in fewer than 100,000 new accounts in its eight years.

"I'd hoped it would be a lot further along by now," Mr. Barr said.

Gerald Goldman, Fisca's general counsel, said the debit/deposit card stands to do better because check cashers are well set up in low-income neighborhoods. The same cannot be said of banks and credit unions, he said.

"People keep going to" banks and credit unions "trying to get them to provide services to low-income individuals," he said. "The reality is, here you have an infrastructure that's been working for half a century."

According to Fisca, the United States has 12,000 to 15,000 check cashing stores and they cash about $55 billion worth of checks a year. Just four years ago there were only 10,000 stores, according to Rick Lyke, a spokesman for Fisca, which is based in Hackensack, N.J.

Check cashers began marketing NetSpend's All Access debit card three years ago. Since then tens of thousands of the cards have sold and nearly $1 billion has been loaded on to them, according to Bertrand Sosa, who founded NetSpend with his brother, Roy, and is now its vice president for advertising and brand development.

Mr. Sosa said NetSpend is "excited" about the planned deposit accounts and intends to keep adding new features to the card after they are introduced.

"We think this can be better" than a conventional bank account, he said.

As things stand now, money loaded on to the All Access cards is deposited in an "omnibus" bank account, which fluctuates in value as customers load money on to the cards and then spend it.

For the deposit accounts to work, money that customers intend to save would have to be deposited into separate, interest-bearing accounts established only for them. Obviously, for the model to work Fisca and NetSpend need a bank partner, but they have declined to name the company or companies they are working with.

Ian A. MacKechnie, the executive vice president of Amscot Financial, a check casher based in Tampa, said Thursday that he had been unaware of Fisca's deposit initiative but that his company would be interested in offering the hybrid debit/deposit card once it is brought to market.

"Our market is underbanked," he said. "Anytime you can offer the ability to have a savings account, that's a positive thing."

Amscot already offers the All Access cards, Mr. MacKechnie said.

"We haven't marketed them particularly aggressively, but they've been very popular," he said.


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GRAPHIC: photo, Barr