Regulators should stop giving Community Reinvestment Act credit to banks that charge inner-city customers to cash checks.
That was the view expressed by members of the Federal Reserve Board's Consumer Advisory Council, a diverse group of bankers, activists, and academics who meet three times a year to debate regulatory issues.
"We're giving banks credit for doing precisely the kind of thing that the CRA was intended to prohibit," Gregory D. Squires, a sociology professor at the University of Wisconsin-Milwaukee, charged at Thursday's meeting.
Gail K. Hillebrand, litigation counsel at Consumers Union, said regulators have no business encouraging banks to open check cashing outlets.
Instead, the government should push banks to open full service branches in inner-city neighborhoods.
CRA requires regulators to evaluate a bank's record in meeting the credit needs of its community. The rules currently give banks credit for providing check cashing services for a fee.
Two council members defended the industry's practice.
David C. Fynn, senior vice president of National City Bank, Cleveland, said depriving banks of credit for check cashing makes no sense.
"Nothing in the CRA requires banks to do things free of charge," Mr. Fynn said. "Making money is not a sin in this country."
Mr. Fynn also said some consumers are more comfortable using check cashers and do not want to open bank accounts.
Carol J. Parry, executive vice president at Chase Manhattan Corp., said customers voluntarily pay for check cashing services.
Nearly 70% of New Yorkers who use check cashing outlets have bank accounts, Ms. Parry said. "They come for the convenience of getting immediate cash," she said. "I don't think the CRA should be regulating banks in a way that makes them lose money."
New York's experience is abnormal, countered Margot Saunders, managing attorney of the National Consumer Law Center. New York limits fees for cashing checks to 1.1%, while most states have no restrictions. "We see check-cashing in other states where institutions are charging 10%," she said.
The council also debated the effect technology is having on banking. Mr. Fynn said members of the committee on depository and delivery systems agreed that consumers have a right to receive printed copies of contracts used to open electronic banking accounts.
But he said banks should have the freedom to send all other documents to home banking customers electronically. Electronic transmission is cheaper and takes less time than traditional mailings, he said.
Other members of the council said the shift by consumers from paper to electronic banking is still years from completion.
Only a small, vocal percentage of consumers want electronic disclosures, noted Ronald A. Prill, vice president of credit at Dayton Hudson Corp.
"We'll probably have to exist in a dual media world for several years to come," said Thomas R. Butler, president and chief executive of Novus Services Inc. .
Others worried that banks will have trouble keeping track of which customers get their documents electronically and which receive them on paper.
"As a consumer today, I want to have paper," said Robert A. Cook, a partner at Hudson Cook LLP. "And maybe my son, looking back 25 years from today, would laugh at that."
