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The Consumer Financial Protection Bureau has taken a cautious approach to its oversight of payday lenders so far, but is likely to issue new regulations covering the industry next year, according to several observers.
November 27 -
New York Department of Financial Services Superintendent Benjamin Lawsky discusses what he regards as right and wrong with financial services, the perils of taking on too many regulatory challenges and why so few top executives have faced the long arm of the law.
August 15 -
Metropolitan National Bank in New York is changing its name and ditching its national charter.
December 5
More banks are looking at check-cashing services as a way to reach a bigger swath of underbanked consumers with less risk of running afoul of regulators.
Payday loans
Carver Bancorp, a $635 million-asset thrift in New York, offers check-cashing to non-customers and it also has a program where it sends kiosks to the sites of employers on paydays. Deborah Wright, Carver's chairman and chief executive, wants to expand the kiosk program.
New York provides an example of how check cashing could be viable for banking the underbanked. Benjamin Lawsky, superintendent of the state's Department of Financial Services, is
Lawsky's office did not respond to requests for comment. Mark DeFazio, president and CEO of the $625 million-asset Metropolitan, declined to comment.
The $117 billion-asset Regions, in Birmingham, Ala., added check-cashing in July 2011 as one of several products geared to underbanked groups.
Regions views the underbanked "as a potential very big market," says Bill Simpson, the company's product manager for NOW Banking. "It's still in a growth curve, as a business."
Check-cashing is included in Regions' NOW Banking suite of products, which includes money transfers and prepaid cards. Regions plans to add money orders to the suite in 2014.
Through NOW Banking, Regions has added more than "250,000 households that we really wouldn't have gotten as a customer without these services," Simpson says.
Fifth Third also added check-cashing in 2011, when the Cincinnati company realized that many of its clients were paying other companies for that service, along with wiring money or prepaid debit cards, says Mark Erhardt, senior vice president of retail product management.
"We felt that keeping that business within our four walls was important," Erhardt says, in part because it could help broaden the number of products per customer. "This wasn't regarded as something to significantly move the fee income line, but more as an expansion of customer services," he says.
Fifth Third expected it would see the heaviest use of check-cashing in its in-store branches, but the service has been equally popular at freestanding branches, Erhardt says. Fifth Third plans to expand check-cashing to ATMs and mobile devices in the next year.
Still, few large regional banks offer check-cashing, and community banks have been slow to add the service. Don Shafer, chairman of BancVue in Austin, Texas, says few, if any, of his consulting firm's 700-plus clients have discussed adding check-cashing as a product line. But the underbanked population is of high interest, he says.
"A lot of our clients are wondering if they should get into serving the underbanked and, if so, how do it to without getting into trouble," Shafer says. "They know there are hundreds of thousands of underbanked customers out there that aren't using their products."
KeyCorp added check-cashing in 2005, but the Cleveland company's managers knew the service would draw regulatory scrutiny, says Rodney Drake, vice president of consumer segment strategy. Key executives debated whether the service would "pass muster" or get the company in trouble, he says.
The $91 billion-asset company believes regulators view its product favorably because "it's really about what is best for this client. We're not trying to force them into taking on another product," Drake says.
The Consumer Financial Protection Bureau could not be reached for comment.
Walmart Stores has also factored into banks' decision-making. Simpson admits that, when his group was studying check cashing, the retail giant's burgeoning money-services business was a major concern. To learn more about the business, Regions sent a team to scout Walmart locations, as well as other check-cashing companies such as ACE Cash Express and Check into Cash.
"We really just wanted to get a better sense of what the experience was like, and how the products and services maybe worked," Simpson says. "I think [the Walmart visits] had an influence on us to think, maybe this is a group for which we could provide a good experience."
