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Will state ease rules on check cashers? Regulators' opinion due this week

State banking regulators will issue a report this week that could lead to higher fee income for licensed check-cashing operations and ease restrictions on where check cashers can locate.

The report would mark the first exhaustive examination of the state's check-cashing law in years, and could become the basis for new legislation in Albany next year. It was ordered by Gov. Eliot Spitzer in May after he vetoed a bill that would have made the existing system permanent.

Six options will be detailed in the report -- but only one will be recommended by the state Banking Department. Depending on the recommendation and the decision of lawmakers, the report could lead to a change in one of the nation's toughest laws governing the cashing of checks.

"The department did extensive research on the industry, solicited public comments, and examined a number of options," Banking Department spokeswoman Jacqueline McCormack said by e-mail. "We are studying both the impact of the fee limits and geographical restrictions. We will consider research on both in our recommendations."

Any change would likely have more immediate impact on New York City, where check-cashers are everywhere. But it could also lead to more licensed check cashers opening up in places like Western New York. A Buffalo News investigation last year found the existence of only one licensed business here has given rise to a cottage industry of corner stores charging far in excess of the legal limit.

"The regulation in the State of New York encourages the law to be broken, because the need is exceedingly great for your customers, especially in inner cities," said Timothy J. Wagner, co-owner of Super Saver, a convenience store on Broadway that considered applying for a license but decided against it because Wagner said the fees -- 1.7 percent of the face value of the check -- are too low to cover the risk.

But others say the supply of regulated check cashers here isn't likely to change unless the state raises the fee cap or loosens other licensing requirements, particularly the mandate that applicants hire someone with at least a year's managerial experience at a licensed firm.

"In an area where there are no other check cashers, you're looking at bringing someone from out of the area up to Buffalo or whatever other city upstate that you might be in," said Edward P. D'Alessio, counsel to Financial Service Centers of New York, a check-cashing trade group. "That can become an insurmountable obstacle."

There's also a lot more on-site attention and knowledge required. And fewer banks will work with check cashers.

"It's very difficult," agreed Andrew Siden, controlling owner and operating partner of Buffalo Check Cashing Inc., the only licensed entity in the region. "You can't get a license unless you have experience in the industry specific to check cashing. That is a barrier to entry."

Paul and Thomas Virginia, co-owners of Save-More Store at 675 Fillmore Ave., have been trying for more than two years to get a check-cashing license. The 80-year-old family business, which now charges just $1 to cash checks for customers, has had its application returned three times, with a total of 48 questions to be addressed.

"We are working on it diligently. It's a little frustrating," Paul Virginia said. "I have spent a considerable amount of time and money in my efforts, and have been rebuffed."

>Illegal fees may be 10%

The issue has particular significance in Buffalo. Last year, The Buffalo News, in its series "The High Cost of Being Poor," revealed that local corner grocery stores, liquor stores, and gas stations in Buffalo were cashing checks without a license and charging up to 10 percent.

State banking regulators, who don't have an office in Buffalo, said they were not aware of the practice. But many of the stores had signs outside advertising the service to everyone.

Store owners said they were responding to high demand from customers, and needed to charge so much because they suffer thousands of dollars in losses from bounced checks and fraud every year -- as much as $20,000 in the case of one store. Some customers would cash a government benefits check and then call the county or state to report the check lost or stolen.

Store owners might succeed in getting the district attorney to prosecute the cases, and might even win a court order for repayment. But Wagner and others say no one ever went to jail in the end, and they still never got their money back, making the effort fruitless.

In the wake of the series, the state sent letters to the stores identified by The News, warning them to stop or become licensed, McCormack said. Some stores requested applications, but others said they stopped.

However, many of the stores have since resumed because the demand remains, store owners said. And they're charging at least as much as before and in some cases more, apparently because of the added risk now of being caught. "The price didn't go down to cash a check in the City of Buffalo. The price went up," Wagner said.

The check-cashing industry has grown tremendously in recent years, as an estimated 10 million American households remain "unbanked," which means they don't have bank accounts or use bank services. Banks generally won't cash checks if you're not a customer.

There are exceptions. KeyCorp and M&T Bank Corp. will both cash checks that are drawn on them even if the person is not a customer. In that case, M&T charges $5 outside of New York state but not here, while Key charges $7.50. But the banks won't cash other checks for noncustomers. Otherwise, consumers must use check-cashers.

New York state has regulated check-cashers for more than 60 years, setting rules for how to become licensed, how much they can charge, what information they must post and disclose to consumers, and where they can set up shop. It's one of 33 states that regulate the industry, including 25 that cap fees.

Under New York law, licensed check cashers currently cannot charge more than 1.7 percent, or $1.70 for every $100. That's one of the lowest limits in the nation, although it can be adjusted for inflation annually by state regulators. And unlicensed companies cannot legally charge more than $1, regardless of the check's value.

>Anti-competitive?

Because of the low fee cap, however, the regulated stores must rely on a large volume of business to survive financially. So the state has long barred new licensees within three-tenths of a mile of an existing licensee, to ensure that each store has an exclusive territory from which to get business. That was codified into law in 1994.

A 2001 law temporarily applied that geographic restriction to separate check-cashing facilities established by banks, which are otherwise not subject to the state law, and which were creating competition.

But that law is due to expire on Feb. 8, 2008. And Spitzer vetoed legislation to make it permanent, calling it "clearly anti-competitive" and citing the opposition of the state Consumer Protection Board and banking industry. However, he called for the study and report by Dec. 1, which gives enough time to act before the law "sunsets."
McCormack would not give any indication about what the department will recommend. But D'Alessio said the industry hopes it won't change anything.

"Our hope is that the department will actually draw on its own experience, which is that the system as currently constituted works," he said. "What you have is a stable industry."

But Wagner said the fee cap should be lifted to make the work and risk worthwhile. "I say allow competition to drive what the marketplace would be. You would find the prices come down," he said.

e-mail: jepstein@buffnews.com

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