Check cashers say a growing number of banks are refusing to lend to or even accept deposits from them, and they are concerned that the trend could put many of them out of business.
Citigroup Inc. was the first big banking company to drop check cashers as customers about three years ago, and several others - most recently J.P. Morgan Chase & Co. - have followed suit, according to Jim Wells, a consultant who works with the check-cashing industry.
Though banks claim they are simply making a business decision, Mr. Wells and others said that the banks are under pressure from federal regulators to exit the niche. That assertion leads check cashers to predict the number of banks willing to serve them will continue to dwindle.
"If you follow this to its logical conclusion, there's no way we can continue to operate," Mr. Wells said.
Other banking companies that have ended relationships with check cashers in recent years include Bank of America Corp., Sovereign Bancorp Inc., and AmSouth Bancorp.
In July, SunTrust Banks Inc. said it would stop lending to check cashers and payday lenders, though it did not bar them from seeking deposit relationships.
JPMorgan Chase said in September that it plans to exit the business by the end of the first quarter.
"We were seeing increasing financial risks and lower profitability," said spokesman Thomas Kelly.
Check cashers, however, say there is more at play than a series of isolated business decisions. They argue that federal regulators, most prominently the Office of the Comptroller of the Currency, are pressuring banks to drop check cashers because of money-laundering concerns.
Gerald Goldman, the general counsel to the Financial Service Centers of America, a trade group representing check cashers, said he has talked informally to a number of bankers who told him examiners pressured them to terminate relationships. When he broached the issue with the OCC, he was told that neither the agency nor its examiners had any bias against the industry, he said.
"We've challenged them, but we've never really had a forum where we've been able to press the issue," Mr. Goldman said. "It's one of the most frustrating experiences I've ever had."
The industry is trying to interest lawmakers in the issue, and it may turn to the courts, he said.
An OCC spokesman said it has no objections to banks' having check-cashers as customers, but he also said that it enforces its third-party, or "know-your-customer," rules very strictly.
"There are very detailed and very important goals that have to be met in order for banks to comply," the spokesman said. "Banks have to consider reputation risk and safety and soundness, but we don't single any industries out."
New York State Banking Superintendent Diana Taylor said in an interview Wednesday that stronger oversight by her department may make banks feel more comfortable in working with or financing check cashers. In New York and elsewhere, though, many of the banking companies large enough to handle a cash- and transaction-intensive relationship with a check casher are national banks.
Check cashers have tried to burnish their image among bankers and bank regulators. Two years ago Mr. Goldman wrote a report entitled "Check Cashers Are Good Bank Customers" that was widely disseminated by Financial Service Centers of America. However, the report has done little to stop the spread of what the industry calls "bank discontinuance."
In his report, Mr. Goldman quoted Peter Grassl, then a vice president for specialized lending at JPMorgan Chase, as saying his company had experienced only one loss from a relationship with a check casher in 20 years.
"That's a pretty good record," Mr. Grassl said. "Obviously, our experience over the years has been favorable. We wouldn't stay in it if it weren't."
Kyle Kotary, a spokesman for the Financial Service Centers of America, said JPMorgan Chase's departure hit New York-area check cashers especially hard, since the banking company served about 70% of the city's check-cashing companies.
Many of the check cashers that had relationships with JPMorgan Chase have moved their accounts to North Fork Bancorp of Melville, N.Y. - which recently hired Mr. Grassl - or Popular Inc. of San Juan, Puerto Rico.
However, Joe Coleman, the president and chief executive officer at Rite Check Cashing Corp. in New York, said neither North Fork nor Popular is interested in taking on all of JPMorgan Chase's check-cashing customers.
A number of small companies are still scrambling to find a new bank, he said. "Check cashers are calling me frantically. I have a couple of friends who haven't found a bank, and if they can't, they'll have to sell out or shut down entirely."
Mr. Goldman said check cashers are hoping to persuade federal lawmakers to hold hearings on the issue. They are also weighing the possibility of litigation, even though "most of the case law is against us."
