Concern Over Check-Cashing Business Expansion

Check cashers first appeared in New York in the 1940s. (Photo by Mariela Lombard via El Diario)

Check cashers first appeared in New York in the 1940s. (Photo by Mariela Lombard via El Diario)

The check-cashing industry currently used by many Hispanics is trying to modernize itself but it is finding it hard to comply with regulations dating back to a 1944 law. Owners are urging state legislators to push for reform and permission to provide loans, debit cards and other services akin to those offered by banks.

Check cashers first appeared in New York in the 1940s, as soldiers returning from service encountered obstacles while trying to cash their government checks.

Decades later, these businesses evolved to compete with the aggressive financial market. Aside from their usual check cashing services ? including salary checks ? they became a convenience center where customers could also pay their public service and cell phone bills in the U.S. – as well as in their own countries – all in one stop. Now, these vendors also sell lottery tickets, phone cards, MetroCards, and some even accept gift cards from stores such as Macy’s. See here to find check cashing near me.

Still, leaders within the industry are trying to take the business to another level, and are asking legislators and the New York State Department of Financial Services (DFS) ? the agency that regulates them ? to pass reforms authorizing them to offer loans and savings accounts.

This is not the first time check cashers have tried to enter the lending business. In 2013, Carl Heastie ? who now is the New York State Assembly Speaker ? Assembly member Denny Farrell and Sen. Jeffrey Klein sponsored a bill to allow these vendors to offer loans between $300 and $2,000 to be paid in 90 to 180 days.

The bill was killed after a controversy revealed that legislators received large sums in campaign contributions from the industry. Another highly-criticized item in the bill was the fact that the loans would have a 200 percent interest rate, eight times higher than the limit allowed by state law. Then-Commissioner of the Department of Consumer Affairs (DCA) Jonathan Mintz, called the proposal a “wolf in sheep’s clothing” for customers.

“Our industry offers our customers complete transparency. They know in advance how much each transaction will cost,” said Jason Carballo, former president of the Financial Service Centers of New York (FSCNY), an association formed by over 400 check-cashing business owners.

“New Yorkers prefer our services because there are no hidden charges at the end of the month,” said Carballo.

Exorbitant interest rates

Check casher owners [would like to offer] 90-to-180-day short-term loans for amounts between $300 and $2,000 with a 25 percent interest rate, an additional $25 application fee and an unspecified “one-time loan commitment fee.”

But customers consider paying 25 percent of a $300 loan ($75) plus the application fee ($100) and the additional “loan commitment fee” to be exorbitant.

“They are useful to cash checks because they give you the money right away instead of holding it for three days like banks do,” said Leodegario Martínez, a Guatemalan laundromat worker who lives in Melrose in the Bronx. “However, I would think twice before taking out a loan at that interest rate.”

“I don’t make a lot of money so, if I failed to pay on time, I would end up owing twice or three times as much,” added Martínez.

When El Diario/La Prensa questioned FSCNY leaders, they said that their proposal is open for discussion.

For banks such as Citibank, the current annual percentage rate (APR) is 18.25 percent (depending on the type of loan). If the loan is not repaid on time, this interest rate can increase 2 percent. However, there are lower rates, such as those offered by credit unions, at 16 percent.

In a New York Times op-ed piece published last October, urban planning professor Lisa Servon recommended check cashers as a good substitute for some bank services. In response, DCA Commissioner Julie Menin said that it was irresponsible to advise New Yorkers to use this type of business.

The office of Assembly Speaker Heastie said that they are willing to evaluate a new bill if it is proposed. Assembly member Robert Rodríguez said: “Albany could start a conversation to modernize Article 9-A of the bank tax of 1944, but no specific project exists so far.”

In the past, community organizations offering financial education have taken on check casher owners and industry leaders for trying to influence legislators.

“The owners of these businesses want to change these laws for themselves only. They would be the only ones benefiting from these abusive, predatory loans,” said Deyanira del Río, co-director of New Economy Project, a group critical of the check cashers’ proposal. “It is true that banks are not efficiently serving people of color, but the answer is not to give free reign to unscrupulous loan schemes.”

Carballo, who is now the president of Castle Financial Services and owns seven check cashers in Washington Heights and the Bronx, said that the reforms will benefit the state. The DFS and the Internal Revenue Service (IRS) regularly perform audits on these businesses that require owners to submit their financial statements.

“Paying licenses and taxes is only the beginning,” said Carballo. “Businesses are also evaluated by state authorities, which allows for a significant source of revenue for [the state’s] coffers.”

The evaluations are based on the business’s cashing volume. On average, the industry ? composed of around 560 vendors throughout the city ? pays the DFS nearly $5 million in evaluations annually, around $7,500 per store.

The DFS has not made statements on the business owners’ petition for law reform. The agency did not immediately answer El Diario/La Prensa’s requests for comments.

Who uses check cashers

The FSCNY estimates that between 800,000 and 1,000,000 New Yorkers use these services every year. Of them, 75 percent have a full-time job, 31 percent are Latino and 69 percent have a bank account.

This is the case with Jorge Vicente from Guatemala.

“I have a bank account but I rarely use it. I live hand-to-mouth. The truth is I do want to save but I don’t have enough for that,” said Vicente.

Still, the most recent DCA figures show that 13 percent of New Yorkers do not have a bank account, like Daniel Méndez, a Mexican who has used check-cashing services for the past three years.

“Ever since I emigrated, I chose not to go to a bank. In my country, I never went to one because I didn’t have money,” said Méndez. “They charge me $6 for cashing my check; it’s not too much. I also get an ID card here, which helps me avoid carrying my passport around for identification.”

Check-cashing businesses employ nearly 4,000 New Yorkers, of whom more than 80 percent are minorities, mainly Latinos and African Americans. Forty percent of the owners also belong to minority communities.

“Our employees live in the neighborhoods where we establish our businesses. We educate them in a career in which they will be able to work their whole lives,” said Gigi Guerrero, from RiteCheck. “A reform would ensure more job positions.”

“In this type of company, you learn skills that can come in handy for other finance-related jobs,” said 34-year-old Laura González, who works at a Manhattan check casher, from behind the counter.

Other employees, however, are not as satisfied. Some said that the minimum wage salary and the benefits do not make up for the long workdays, especially at stores operating 24/7.

What else are check casher owners requesting

  1. Elevating check-cashing limits from $15,000 to $25,000 and expanding the types of check that can be cashed.
  2. Reclassifying check cashers as financial service centers to reflect the real reach of their multiple services, which include money order sales, remittances and collaborations with credit unions.
  3. Modernizing license application processes by creating a general license for companies operating several stores.

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