Check Cashing Pilot Project Reveals Practice Good For Many Credit Unions; Way to Attract Members

MADISON, Wis. – The Filene Research Institute has released a final report from a recently completed check cashing pilot project. The project, which took place in 2003, tracked the experience of 19 credit unions or credit union organizations that started cashing the checks of their members and their broader communities for a fee. The idea that credit unions might begin cashing non-member checks has been percolating for some time; in particular as check cashing outlets in underserved areas have proliferated. The pilot project sought to investigate and document the obstacles credit unions face in beginning to cash more checks as well as the benefits from having done so. Altogether, the 19 credit unions and credit union organizations which participated in the pilot study found check cashing made good sense for them, according to The Implementation of Check Cashing Services. Among the experiences documented included that of Charter Oak FCU, a $426 million credit union headquartered in Groton, Connecticut. Charter Oak began marketing its check cashing program to non-members, for which it charged 1% of the check’s face value, in February 2002. In the 11 months of 2002, it brought in $55,000 in fees, as well as new members who joined the credit union as part of the check cashing process. Over the course of 2003, the program brought in $102,000 almost double what it did in 2003, according to Ray Currier, an executive with the credit union. Currier reported that the credit union had moved into check cashing gradually after first announcing that it needed to institute a 1% check cashing charge when cashing its members’ checks to try to control some of its expenses. Beginning in the fall of 2001, Charter Oak notified members that if they did not maintain at least $100 in a share account, they would have to pay a 1% fee for having their checks cashed. “Our members understood generally and were supportive because we did a very good job of explaining to them why we were making the change,” Currier explained. “We didn’t do nearly as good a job explaining it to our staff.” Charter Oak found that initially its staff resisted the policy by, for example, telling the member to go ahead and make their deposit and then make an immediate withdrawal from an ATM, thus actually increasing the credit union’s transaction costs. “They were just doing what credit union people do,” Currier said, “they were acting in a way that they believed was in the best interest of their members.” Currier said that Charter Oak had to explain more clearly to the staff that the credit union has a responsibility to manage its costs and benefits for its services so that it could maintain them in a sustainable way. “We are here to help our members get the best deal,” Currier said, “not as a charity.” Once the staff came on board, Currier said that program advanced quickly, spreading mostly by word of mouth and from the staff presenting it as an option. The staff grew particularly excited, Currier explained, after they understood that the credit union’s 1% fee was half of the 2% Connecticut check-cashers are allowed to charge by law. Building this awareness of the reality found in other nearby check-cashing outlets is a necessary part of the credit union strategy for succeeding at check cashing, according to Mark Meyer, the Filene Institute’s director of innovation. Meyer had been the Institute coordinator for the pilot project. “Frankly, we advise them to shop around at area check cashers to find out what they offer and how much it costs the consumer,” Meyer said. “It’s very important the credit union understand how much of a better deal they will be offering.” Check Cashers Turned Members Currier explained as well that even though Charter Oak does not keep records of how many people who come in as check cashers wind up as members, he said he has heard many stories from staff members about how they were able to open share accounts for members who start out merely cashing checks. The opportunity to draw more members through cashing checks also interested the Wisconsin Credit Union Shared Service Centers in starting the service. The CUSO began investigating offering check cashing to the general public in 2001, but that effort had faltered because the branch it considered most likely was too small. The CUSO picked up the effort again in July 2003, after a bank branch the CUSO was renovating was thought to have sufficient size. “We are different than check cashers,” said CUSO President Rick Hagopian. “Many check cashers use a sliding scale fee structure, which can be expensive for the consumer. We chose to charge a flat fee, which we feel is in the consumer’s interest. But the biggest difference between our operation and a check-cashing service is that once a relationship of trust is established with consumers, we’re in a position to introduce them to 30 credit unions in our state, at least one of which is likely to be able to accept them as a member.” The CUSO has also invested in offering many of the additional products and services, such as money orders, traveler’s checks, stamps, envelopes and bus passes that area check cashers also offer in order to better compete. Hagopian noted that most of the checks the credit union cashes are payroll checks, indicating that the person getting the check cashed would be a likely candidate for credit union membership. Alternative Marketing Channels The $8.4 million River City Credit Union headquartered in LaCrosse, Wisconsin, is located in a generally low-income area where check cashing outlets are common, and the credit union CEO, Bea Venner, reported believing almost instinctively that a check cashing service could be a draw. But even after the credit union had the service up and running it drew relatively few users until River City stopped advertising it in newspapers and instead began putting up flyers in neighborhood businesses where consumers could see them. The credit union has even contacted a nearby payday lender that does not offer check cashing to try to get it to mention the service to its customers. The report said those marketing approaches would continue. Jack Gill, CEO of the First Community Credit Union, a $38 million credit union headquartered in Beloit, Wisconsin, said his credit union’s experience with check cashing should reassure other credit unions about how simple it was to do overall. “This is a pretty simple product, and needn’t be over-analyzed. We started our service without software, working with manual logs and registers to keep track of program use. This approach keeps the cost down until we have a track record and can determine how successful the program will be.” First Community was the fastest credit union to get its check cashing operation up and running, according to Meyer. It took the credit union only six weeks to go from attending a meeting on check cashing to having a program in place, he explained. “In general, we find that it is the smaller credit unions, those under $100 million, which are often the most able to get a check cashing program up and running quickly,” he added. Meyer explained as well that while the pilot project’s report had highlighted the project’s success stories, there were a number of credit unions which had initially expressed interest in check cashing but which were unable, in the end, to start one after all. “There were a number of reasons,” Meyer said. “Ranging from problems with their IT systems not being able to easily accommodate check cashing to the time it took to get the management, staff and board to accept the idea to reticence about hanging a sign outside that says `we cash checks.’ A number of CEOs have told us they wouldn’t want their members knowing that they cashed checks for the public,” he said. -