Like most banking companies, First Midwest Bancorp Inc. in Itasca, Ill., stopped doing business with check-cashing stores and other money-services firms a few years back because it feared running afoul of anti-money-laundering laws.
But now the $8.3 billion-asset First Midwest views money-services businesses as underserved, and it wants to position itself as the go-to bank in its markets for their loan and deposit business. The company this week said that it has started a program tailored to money-services businesses and has named a former internal auditor, Joleen McCarty, as its manager.
"The tighter regulatory environment has caused MSBs to have difficulty in finding a bank that is prepared to meet their needs," Ms. McCarty said in a press release. "Our program gives an MSB client peace of mind that they are working with a bank that is committed to serving this market over the long term."
Money-services businesses, which also include wire-transfer services and payday lenders, have struggled in the post-9/11 era to find banks willing to serve them because of the potential for risk in their large cash transactions. Given the regulatory burdens imposed by the Bank Secrecy and USA Patriot acts, banks found it easier to sever relationships with the money-services businesses than to do the customer policing needed to retain them, said Robert Rowe, senior regulatory counsel at the Independent Community Bankers of America.
In 2005, the Treasury Department identified the firms' lack of access to banking as a problem, and this summer the House approved legislation that would relax oversight requirements and encourage banks to do business with them again.
Though the bill is unlikely to make it through the Senate this session, it gained bipartisan support and will probably be revisited by the next Congress, indicating a recognition that the sector "serves a very important function" in the economy, Mr. Rowe said.
William G. Maier, a senior vice president and cash management division manager at First Midwest, said its money-services program will target businesses ranging from mom-and-pop grocery stores that offer check cashing and want to offer remote deposit capture to large money-services businesses that offer a full suite of products and need help managing their cash.
A key component of the program will be working with clients to ensure that they remain in compliance with anti-money-laundering laws.
Ms. McCarty, who formerly worked in First Midwest's accounting department, is to assist the companies with registration and licensing, account monitoring, and risk assessments in order to satisfy both the bank's regulators and the company's obligations to the Financial Crimes Enforcement Network.
"Our thinking is that if we are going to truly be able to meet the needs of this market we would need to dedicate resources to it," Mr. Maier said. "We want these clients to look at us as a resource and trusted adviser here to assist them in the regulatory environment."
In July 2004, the Illinois Department of Financial and Professional Regulation and the Federal Reserve Bank of Chicago ordered First Midwest's bank subsidiary to better monitor its customers for possible Bank Secrecy Act infractions.
After an upgrading of its compliance procedures and a review of transactions in 2003 and 2004 for any suspicious activities, the regulatory order was lifted in September 2005.
Emphasizing the importance of mitigating risk by knowing the customer, Mr. Maier said the company will only extend its money-services program to businesses within the communities it serves. First Midwest has more than 100 branches in the Chicago area, central and southern Illinois, northwest Indiana, and central Iowa.
"We've had some very in-depth conversations with our regulators about the parameters of the program and balancing the risk with the reward," Mr. Maier said. "I am sure it will be an ongoing dialogue."
The potential reward, he said, will probably show up in deposit and fee income growth. The program's success will be measured in deposits and revenue, but Mr. Maier declined to specify the company's benchmarks.
Terry McEvoy, an analyst at Oppenheimer & Co., said First Midwest executives "obviously see this as an opportunity to take advantage of a market disruption to a customer base that is in need of a new banking relationship. To them, it appears there is money to be made there."
Scott McClain, deputy general counsel for the Financial Service Centers of America, a trade group that represents money-services firms, said his members have few options when it comes to banking and that more competition from banks such as First Midwest could potentially mean lower fees.
Only a handful of Chicago-area banks, including Corus Bank, have money-services businesses as clients, Mr. McClain said. In the New York area Capital One Financial Corp. and Banco Popular Inc. hold 90% of the money-services industry's accounts, Mr. McClain said.
"The lack of access has become a significant barrier to entry," he said. "It's critical that money-service businesses have access to banking services. Without access, they simply can't exist."
