Credit Union-Check Casher Deals Poised to Expand

NEW YORK – Within a month or two, members of credit unions all over New York City may be able to make deposits into their credit union accounts through any one of 500 check cashing stores in the city. The success of the pilot project conducted by the Manhattan-based $71 million Actors Federal Credit Union and the $9 million Bethex Federal Credit Union, headquartered in the Bronx, has paved the way for the expansion. Actors Federal and Bethex members have been making deposits at the check cashers since the early summer of 2002, as part of a pilot project that was meant to test the idea’s acceptance among credit union members as well as iron out technological and regulatory problems that might arise. The project has found credit union members enthusiastic about the expanded hours and ease of deposit access, and the regulatory problems have been laid to rest, according to the credit unions. The one remaining problem has been a technological one that Jeff Rodman, CEO of Actors, and the technical staff of CO-OP Network, based in Ontario, California, have been working on and have drawn close to fixing, Rodman and CO-OP executives agreed. Once it is up and running, credit unions processing with NYCE will be able to indicate to NYCE and the CO-OP Network, if they are Network members, they want to accept deposits through the check cashers’ so-called Point-of-Banking Terminals. These terminals resemble ATMs in that the member will have to swipe their card through a counter top reader to guarantee proper credit to their account. But they are unlike ATMs in that an employee of the check casher will actually make the deposit for the member. The check cashing teller will also, for a reduced fee, cash the member’s check for them and deposit all or part of it as cash into the member’s account, thus forgoing the usual holds financial institutions place on checks. The one remaining problem has been the ability to let the credit union know whether its member that has made the deposit has deposited a check or cash, according to Rodman. “The point-of-banking processor in Atlanta knows whether it’s a check or cash, NYCE knows whether it’s a check or cash, the problem has been how to get that information through CO-OP Network to us,” Rodman said. The difference is significant because the credit union will hold checks but will grant immediate access to cash, he noted. But Jim Hanisch, Executive Vice President for Corporate Development for the CO-OP Network, said that the CO-OP Network has made major progress in resolving the problem and now there remained only some legal work that needed to be done in order to address liability concerns in having a non-depository institution take deposits on behalf of a depository institution. “I am fully confident we will overcome this problem,” Hanisch said. Hanisch pointed out that the idea of a non-depository institution, like stores or check cashers, taking deposits for financial institutions is not new. Before the advent of the ATM, such arrangements were fairly common in some areas of the country, particularly relationships between grocery store chains and financial institutions, Hanisch explained. “They [the check cashers and credit unions] are just building on an old idea,” Hanisch said. Joe Coleman, CEO of RiteCheck, credited the creation of a network for check cashers to use to cash payroll checks for the ability to offer depository services to credit union members. Several years ago, the association of check cashers in New York established a network, called Paynet, to facilitate the check cashers cashing payroll checks for certain firms whose facilities are in neighborhoods where there are few bank or credit union branches. Depositing credit union members’ checks and cash will build on the connections established in that network, Coleman said. “It would have been done by now,” he said, “if Paynet had not a lot of tech problems.” Paynet now switches its transactions through Lynk Systems, headquartered in Atlanta, Coleman said. Coleman also acknowledged that it would be up to check cashers to decide whether or not to participate, along with credit unions, but he said that “check cashers are already clamoring for it.” Problems with technology and regulation have only been one reason the project has been slow to expand. Hanisch acknowledged that the Network initially had questions about whether it would be in its own interest to help credit unions across New York take deposits through check cashers. CO-OP Network is in the middle of its merger with the Service Centers Corporation, a leader in the shared branching effort, headquartered in Southfield, Michigan. It seemed to some at CO-OP that they were being asked to participate in an expansion of competition, and Rodman reported that some shared branching services in New York had shared those concerns. But Hanisch and Rodman emphasized that taking deposits represented such a small portion of services that a credit union shared branch provided, that check cashers taking deposits are not really competition. “Shared branches provide loan services, educational services, as well as other products like CDs and other services,” Hanisch said. “The point-of-banking terminals in the check cashers will take deposits, that’s it.” Rodman agreed, pointing out that a teller in a check cashing establishment will not be able to see anything like the amount of information about a credit union member that a teller in a shared branch is able to see. “These are basically ATMs with people,” Rodman noted. Reaching Out to the Underserved The check cashers benefit from the increased traffic though their stores and from the increased interchange income. Check cashing is a very competitive industry in New York and traffic has become stagnant in a lot of stores, Rodman explained. The check cashers who accept deposits will receive $2 for every deposit, which is a very high interchange rate, Rodman noted. Coleman agreed that volume and interchange income motivated the check cashers, but he contended that check cashers are not anti-credit union and that they support credit union efforts to help the underserved. He pointed to the lower fee the check cashers will charge members for cashing their checks of which even a portion are deposited into their CU accounts. In this case it will be a $1.50 flat fee versus the roughly $2.00 fee that regulations usually allow, he noted. The interchange rate may subsidize that reduction, but the goal at RiteCheck is to see some of that money make it into the credit union member’s account, he said. Coleman also pointed out that Bethex advertises in RiteCheck stores and that RiteCheck refers customers to Bethex regularly. [email protected]