Following is an article that appeared in the
LA Times, Home Edition, on March 16, 2000.
Banking Takes Interest in Check-Cashing Industry
Finance: Union Bank may buy 40% of Nix, one of the U.S.
firms targeting 25 million people without accounts.
Union Bank of California is expected to announce today
that it is buying into Southern California's largest
check-cashing operation, accelerating the banking
industry push into a controversial and profitable
business that targets low-income neighborhoods.
By purchasing 40% of Nix Check Cashing, the state's
third-largest bank is seeking a foothold in low-income
areas such as South-Central Los Angeles and Santa Ana,
where there are few bank branches but plenty of
check-cashing operations that have thrived by charging
Check-cashing outlets have become a vital part of the
economic life of many inner-city and heavily immigrant
neighborhoods, where residents have distrusted
financial institutions. Nix operates 47 storefronts
that are frequented by 600,000 customers.
The Union Bank deal comes as other banking giants are
also moving to reach out to some of the 25 million
people in the U.S.--including 4 million in
California--who don't maintain bank accounts. A
growing number of banks are betting they can boost
profits and, in some cases, attract new customers, by
expanding into these underserved neighborhoods.
But rather than opening new branches, many financial
institutions are jumping into the check-cashing
Wells Fargo, the state's No. 2 bank, is teaming with
the nation's pawnshop king to roll out hundreds of
check-cashing automated teller machines this year.
Even American Express, which targets high-end
customers, said last month it will begin offering
check-cashing services for the first time through
its recently acquired ATMs in 7-Eleven stores
The strategy has prompted concern from consumer
groups, who say this isn't what they had in mind
when they prodded banks to return to inner cities.
"Banks should be entering the fray as banks, not as
check-cashers," said Elizabeth Renuart, staff
attorney at the National Consumer Law Center in
Renuart found it ironic that banks, after closing
their branches in low-income neighborhoods, thus
relegating the poor to using check-cashing outlets,
are now trying to profit from the same high-fee
business they helped create. That could
perpetuate a two-tiered system of delivering
financial products that discriminate against the
poor, Renuart said.
"The unanswered question is whether banks will be
any better for consumers than the check-cashers
have been," she said.
Citibank, for example, is partnering with a
national check-cashing trade group to distribute
debit cards for welfare recipients to receive
government benefits electronically. But the
monthly fees are about the same as, or
potentially higher than, what a low-income
consumer would have to pay to cash paper checks.
Still, officials at Union and other banks insist
their push into the check-cashing industry will
increase competition, lower prices and improve
Wells Fargo officials noted that the fee to cash
a paycheck at one of their new ATMs averages 1.75%
of the check's amount, versus an average 3.28% at
Dollar Financial Group, one of the nation's biggest
check-cashing chains. [CB: versus FREE at a
Wells Fargo branch location. Making it quite
obvious why Wells Fargo is refusing accounts to
people, yet has no problem directing those same
people to this ATM network. Banks claim they refuse
the account due to risk. But this proves that risk
has nothing to do with it - and fee revenue has
everything to do with it!]
Nix charges 1.85%, plus 75 cents per transaction.
"It may be a scrappy industry, but you can run a
scrappy industry honestly and ethically," said
Richard Hartnack, vice chairman at Union.
Hartnack stressed his bank is more interested in
forging long-term customer relationships than
reaping short-term profit.
By paying $6 million for its stake in Nix, Union
hopes to convert many of the Carson firm's clients
into steady Union Bank account holders. Union also
will offer some of its financial products through
"Other banks seem to be focusing on the [upscale]
market, such as investment products," Hartnack said.
"We are challenging ourselves to develop financial
services that we can provide at the lower spectrum."
A recent Federal Reserve survey found that nearly
10% of the nation's households don't deal with banks,
usually because they don't have enough money, can't
afford the fees or don't trust banks.
These so-called "un-banked" consumers have sparked
an explosion in the check-cashing industry, which
has tripled in the last five years to a $60-billion
business with about 6,000 outlets nationwide.
John Bryant, founder of nonprofit Operation Hope in
South-Central, has been an outspoken critic of the
check-cashing industry, but he said he decided to
support the Union-Nix deal because he believes th
e bank will help "clean up" the unsavory practices
of some check-cashers.
"They will create a whole new standard for the
check-cashing industry," said Bryant, whose
South-Central group will receive a 5% stake in the
Union-Nix partnership in return for providing
credit counseling, home-buying assistance and
Union began experimenting with check-cashing
services in 1992, working with community groups to
develop specially targeted products that would
appeal to low-income consumers. For example, Union
developed several "transitional" accounts, which
combine a savings account with discounts on
check-cashing and money orders. Then the bank
opened 15 check-cashing offices, called
Cash & Save, in low-income
Union officials were encouraged by the pilot
program after about 40% of the check-cashing
customers eventually became traditional bank
account customers, according to Yolanda Brown,
senior vice president at Union.
With the Nix deal, Union will continue to
operate its Cash & Save outlets separately,
but the bank will roll out the same products
to all Nix locations. Under the terms of the
deal, Union has the right to buy the rest of
Nix's holding company, Navicert Financial, in
Nix Check Cashing, which was founded by the
Thomas Nix family in 1966, began looking for a
bank partner last summer so it could broaden its
array of financial products.
"This is a terrific opportunity for the bank,
for us, and the community," said Tom Nix Jr.,
chairman of Navicert. "It's a strategic alliance
that will bring banking back to the inner city."
The deal also puts Union into an even more
controversial business of making high-interest,
payday-advance loans, a fast-growing product that
consumer groups say exploits the poor.
Payday advance loans, which range from $100 to
$200, enable cash-short consumers to borrow
against their next paycheck--but at interest
rates that are often as high as 15% for just
two weeks, or $30 for a $200 loan.
Because of the new partnership with Union, Nix
agreed to lower the interest rate on some
advance loans and adopt more consumer-friendly
terms, Hartnack said.
Last month, consumer groups, including
California Public Interest Research Group,
urged state legislators to regulate the
The groups say that many check-cashers are
allowing consumers to roll over or renew the
high-priced loans repeatedly until fees
surpass the original loan amount.
In response to such concerns, Union officials
have persuaded Nix to permit only one renewal
of its payday loans and to cut the interest on
the rollover loan to 10%.
Separately, Wells Fargo, based in San Francisco,
also is hoping to capture a chunk of the
check-cashing business through its InnoVentry
], a joint venture with Cash America
International in Fort Worth, Texas, the
nation's largest pawn loan company.
The two companies plan to install 1,700
check-cashing ATMs nationwide by the end of the
year. The machines will debut in California at
Ralphs supermarkets and Circle K stores. But
unlike Union, Wells Fargo says it doesn't
plan to turn its check-cashing customers into
Three years ago, the bank learned that delving
into check-cashing can be fraught with risks.
A contract to cash welfare checks for Los
Angeles County residents turned into a public
relations nightmare when bank lobbies became
packed with low-income residents.
The bank tried to reduce the traffic by
handing out vouchers for outside check-cashing
firms, but critics accused the bank of trying
to shuffle the poor out of their lobbies. The
contract was not renewed.
[CB: Bold type in above added for emphasis by us
- ChexSystems Bites!]
By: EDMUND SANDERS, LA TIMES STAFF WRITER