Are credit unions and check cashers the perfect partners, but they just don't know it yet?

<p>ARLINGTON, Va. – While two New York based credit unions have received the most recent attention for allowing their members to make deposits via check cashers, a growing number of credit unions around the country are looking into either cashing nonmember checks or entering into agreements with check cashers to take their members’ deposits. Two New York credit unions -the $8 million Bethex Federal Credit Union and $64 million Actors Federal Credit Union – have begun a pilot project with three New York check cashers that allow their members to make deposits through them. Actors FCU reported that their members have generally embraced the relationship although the CU’s short time in the project precluded drawing any firm conclusions. A 2001 Filene study, undertaken with a grant from the National Credit Union Foundation (NCUF) and the Ford Foundation, advocated credit unions “operating in a way different from” either check cashers or traditional depository institutions, primarily by adding check cashing and bill paying services to their traditional credit union services. But Bill Sayles, managing director of the Center for Credit Union Innovation, has tracked the issue closely and drew a distinction between what the two New York credit unions are doing and the additional services a number of credit unions are investigating. “The relationship the two New York credit unions have with the check cashers is really only possible in a state which regulates its check cashers as thoroughly as New York does,” said Sayles, noting that he believed that New York prevents check cashers from serving as pay day lenders. Other credit unions’ concerns over the possibility their members could be solicited into payday loans would probably prevent them from getting involved with them in other states. Very high fees in states that do not regulate their check cashers closely could also be an issue, he said. Cliff Rosenthal, executive director of the National Federation of Community Development Credit Unions (NFCDCU) agreed with Sayles’ assessment. After calling the Bethex/AFCU effort an “interesting pilot project,” Rosenthal said the NFCDCU would have been “concerned” about it had the check cashers in New York not been as well regulated as they are. He also said the NFCDCU would “draw a line” at anyone pointing to the credit union/check casher partnership and trying to make a case for check cashers being allowed to become depository institutions, an argument which has been made lately, he said. “We will be very, very interested to see how the project has benefited Bethex members,” Rosenthal said. Bethex is a NFCDCU member. The Missouri Credit Union League’s Shared Branch Network has been running a pilot program since August 2001 that, Sayles said, is more typical of the sort of check cashing program that more credit unions have expressed an interest in getting involved. As part of the pilot, two of the Network’s Shared Branch Centers have started cashing nonmembers’ payroll and government checks, according to Mark Hohenstein, vice president of the Shared Branch Network. Hohenstein reported that the program in the first location has been slower to take off, which reflected both the credit unions’ caution about the program as well as the location in a more affluent suburb of St. Louis. Checks cashed at that location have been limited to 40 or 50 per month, Hohenstein reported, but the credit unions have not had a single loss from the checks yet. A second location in a more impoverished area has been opened and volume has been growing more quickly, Hohenstein said. The shared branches which cash the checks post signs visible from the street that advertise their check cashing and they only charge 1% for the service, which is a good deal less than the prevailing rate, Hohenstein said. The check cashing shared branches have also succeeded in signing up new credit union members from among the people needing checks cashed, he said, adding that he had visitors interested in viewing and learning more about the program from credit unions and credit union leagues in Kansas, Utah and Florida. But despite the increased credit union interest there are indications that the extent of credit union involvement in, and outreach through, check cashers may be limited, because the attractiveness of the phenomenon does not rest on check-cashing alone but on other services which may be beyond credit union powers. “It’s really a misnomer to call most of them `check-cashers’ any longer,” Sayles said “In reality actually distributing cash from the checks cashed is only a small part of what many do.” Sayles reported that most, if not all, check-cashers convert the funds in the check, for an additional small fee, into money for wire transfers or money orders that the customer sends home or uses to pay bills. In many cases there are actual connections to utility and other companies, allowing customers to pay their bills directly from the facility. They also sell all sorts of other products like phone cards, metro cards, and other retail items that customers want. Hank Shyne, executive director of the Financial Service Centers of America, the trade association for the nation’s estimated 6,000 member “professional check cashing industry” verified Sayles’ observation about the details of his members’ business and said the industry was open to taking credit union member deposits. Contrary to popular misunderstanding that “makes our PR firm tear its hair out,” Shyne said that two-thirds of his members’ customers actually have bank or credit union accounts already and approach check cashers for the additional products and services they offer. Many with bank or credit union accounts also use the check cashers to avoid their financial institutions policy of holding funds deposited in checks. “In an urban area we have situations where people will come in, cash their paychecks and then carry the cash across the street to deposit it in a bank or credit union,” Shyne said. He pointed out that a check casher’s customers who, for example, work in New York but live and bank in the New Jersey suburbs, can face a hold of five days on their paychecks because they are drawn on banks considered out of state. [email protected]</p>