Check cashing can be a risky proposition without proper tools in place to minimize fraud. Here are a couple layers of protection that really help and can easily be implemented with the right check cashing system….

1. Access to data from other check cashing retailers
2. Automatic flags for potential fraud with velocity settings
3. Positive ID of customers – using FBI-certified biometric technology

1. Data from Other Retailers

Real feedback and data from other retailer cashing checks is invaluable. Participating in a network that shares negative data across all stores is a great asset when dealing with fraud rings.

AllTrust’s network includes 2000 retail check cashing locations (including grocery, liquor, and convenience stores, mom & pop shops, as well as traditional check cashing locations). In addition we have more than 6 million consumers enrolled in our network, and data on more than 3 million companies issuing payroll checks. This data is accessed during the check cashing transaction to reduce your exposure to fraud.

2. Velocity Settings

Velocity settings alert you to differences in your normal check cashing activity; from either an individual customer or a check issuer. A velocity warning is not always an indication of fraud; but it is a warning that your risk has increased; as your average check cashing transaction amounts are (or will be) exceeded.

Look for check cashing software that can enforce your store policies (e.g. velocity settings) automatically. For more on velocity and how to use it effectively, read our post “Velocity: What is it and how it can help protect your business from fraud”.

3. Proof of Customer Identity

How do you know a person you’ve never seen before, holding a check to cash is who they say they are? There’s a government issued ID (driver’s license), and their word. But that’s not always enough. IDs are still relatively easy to fake. So, how else can you know your customer?

Biometrics can help; when you use a quality biometric device (e.g. FBI-certified) to compare your customer against a network.

1. They discourage potential fraudsters. Once an individual is in the AllTrust system, and if they are marked BAD; any time they try to cash a check within the AllTrust network, they’ll be declined.
2. Good customers like the convenience of biometrics. They simply place their finger on the scanner and their record appears on screen (no more fumbling for IDs). Plus once they have a history in the network; even if you don’t know them individually; you can quickly view their check cashing activity at your store, or elsewhere.

For more about check cashing tools, contact AllTrust Networks at 1-866-280-1679 or visit our product site at www.alltrustnetworks.com.

In April this year, the Bank On DC initiative was launched to help underbanked get bank accounts.  Now, the Washington Examiner reports that Ward 3 Councilwoman Mary Cheh is proposing legislation that would limit how much check cashing companies can charge per transaction. New legislation would limit fees to 2% of all check or $4, whichever is greater (down from current 10% for personal checks and 5% for government checks).

Business officials are saying this would push check cashing companies out of the District. Barbara Lang, chief executive officer of the D.C. Chamber of Commerce also testified against the bill, saying legitimate check-cashing businesses shouldn’t be unfairly penalized for the wrongs committed by the financial service industry that caused the economic downturn. Lang exhorted the council not to consider profits a “four-letter” word.

Are you a check casher in DC? Are you feeling repercussions from Bank On DC? Would you move out of the district if fee revenue dropped dramatically? Share your opinion with us in the comments below.

Photo by bendeming

The number of check cashing transactions was down 2% in April 2010 vs. April 2009 for comparable stores within the AllTrust Network.

The trend of comps has been improving throughout 2010, as seen in the graph below.

May data with additional commentary will be published around June 10.

How is your volume vs. last year?  Vote in the Poll below. . .

More on AllTrust Networks Check Cashing Data

As a money services business you need to be aware of the federal government regulations surrounding money services. If you are not, you may be putting your business at risk by not fully complying with the law. Here are ten things that retailers should be aware of if they are cashing third party checks and/or providing wire transfer services.

1. Money Service Business (MSB) Registration Requirements (Check Casher permit) – Any business conducting money transactions in amounts over $1,000.00 must register with FinCEN. Also, any business doing wire transfers, regardless of the amount, is automatically considered an MSB and must also register with FinCEN (http://www.fincen.gov/).  See my previous Money Service Licensing 101 post for more on registering with FinCEN, as well as any state registration requirements for check cashers.

2. Anti-Money Laundering (AML) Program – This is a requirement of all MSBs. This program must be in writing and provide adequate training, testing and implementation to fight money-laundering and other financial crimes.

3. Bank Secrecy Act – Be aware of these regulations that require all Money Service Businesses to create paper trails by keeping records and filing the proper reports.

4. US Patriot Act – Enforces “know you customer” and requires maintaining a record to prove that these check cashers are not known terrorists.

5. Designation of Compliance Officer – Your business must have a designated compliance officer who is trained and familiar with AML compliance regulations.

6. Currency Transaction Reports (CTR) – Be familiar with these government reporting forms and ensure that you are reporting all applicable transactions.

7. Suspicious Act Reports (SAR) – As with the CTR, be familiar with these government reporting forms and ensure that you are reporting all applicable transactions.

8. Money Order & Money Transfer Logging/ID Requirements – This activity has its own separate set of identification requirements. Make sure you are complying with government regulations by filling them out as necessary.

9. Proper Filing & Proper Record Keeping Requirements – Your business should keep records on file for at least 5 years.

10. Office of Foreign Assets Control (OFAC) Specially Designated Nationals List – Provided by the Office of Homeland Security this list is updated regularly. You should always use the latest version when checking against your check cashing customers

For more on government compliance and implementing an AML program, visit the AllTrust website, or call our compliance hotline at 1-800-683-4214.

In a previous article, I showed how foreign IDs make up a substantial portion of the check cashing market.  In much of the West and South, you’re missing out on opportunity if you don’t accept foreign IDs for check cashing.

The next logical question is “what about risk?”  It’s great to cash more checks, but not so great if you take a pile of fraudulent checks.

As it turns out, customers with Mexican IDs (typically matricula consular) actually carry LESS risk – about 25% less.   Note: this data is specific to the 2,000 retail locations using  Paycheck Secure check cashing software from AllTrust Networks.

The other good news is that the returns are of a better nature. NSFs are the “best” return, as you can often eventually collect from the account. Returns reasons such as fraud and account closed are next to impossible to collect.

For Mexico IDs, NSFs make up 80% of returned items, while the average is 65% nationwide.

Interested in accepting foreign IDs yet.  Let’s recap. . .

• Significant portion of the market
• Lower return rates
• Better chance to collect when a return does happen

Let’s hear about your return and collections experiences in the comments.

A customer walks into your store, hands over his check and matricula consular card and you tell him what?

1. Sorry, I won’t cash your check.
2. Great!  Let me process this for you.

If it’s option 1, you’re probably turning away a lot of customers.

A summary of March 2010 data from AllTrust Networks shows that customers with foreign IDs consisted about 17% of all check cashing transactions nationwide in March.

You’d expect states like California to have a high percentage, and you’d be right, as they clocked in at about 25% of transactions.

States with surprisingly high percentages were Colorado, Utah, and South Carolina, all with about 35% of transactions driven by foreign IDs.

Overall, about 2/3 of foreign ID transactions are driven by Mexican identifications, typically a matricula consular card.

So. . .if you’re cashing checks, do you accept foreign IDs?  Does your check cashing software handle foreign IDs?

Expansion of the Bank On initiatives for the unbanked has really picked up recently!  San Francisco was the first to launch a program back in 2006 to work with financial institutions to make it easier for the unbanked to get into mainstream banking; providing consumers with financial education and starter accounts. And it has been very successful at bringing a large part of the 50,000 unbanked residents into the financial mainstream.

Other cities around the country are looking to San Francisco’s success.  Recently Bank On initiatives have been announced in DC, Memphis and Dallas.  Programs also exist in six other California cities,  Seattle, Boston, Indianapolis and New York City.

These programs are a great means for consumers to get a better understanding of the banking system and establish a relationship with a bank; but its not an answer for everyone.  Not all unbanked individuals are going to go to a bank; for a variety of reasons outlined in my previous Check Cashing 101 post.

While the SF program has been successful; there are still check cashing establishments and other retailers that do a lot of check cashing in the city.  Just Google ‘check cashing san francisco’.  I’m sure these businesses have seen some drop in volume, but is that the economy, or Bank On.

Are you a check casher in a city with a Bank On program?  Tell us in the comments, how you are being affected by these initiatives in your city.

Photo by Daniel Y. Go

A little Friday fun….

There was a man who owned some stores
and did pretty well as a check casher.
He was happy! But not for long.
He got caught out by a fraudster.

Into his store came a man.
A nondescript someone who had a plan.
His check was a fraud, low MICR
Invalid ABA; and worse yet, on the SDN.

But he didn’t know; nor did his software
So now our happy check casher is short
2 grand. How sad, and what’s worse,
He’s soon to be paid a visit

by our government friends; yes its
the IRS. But wait, he has no AML policy
what should he do? Can he run, can he hide?
No chance!  What folly!

Call AllTrust today, 1-866-280-1679.
We’ll help you with software, biometrics,
AML programs, compliance galore
We know what to do; it is true.

Are you providing money services for your customers?

Do you have a license for the regulated services you provide?

Take a lesson from this NJ licensed money transmitter who was cashing checks on the side.  He charged 3% to cash checks; and then would take them to a licensed check cashing establishment; where he received cash for the checks.  Not exactly legal!

I’m sure you’re not doing that, but now might be a good time to make sure you’re complying with all licensing requirements for check cashing; local, state and federal.

LOCAL

There maybe zoning or permit requirements.  Check with your local government for more information.

STATE

Thirty-two states require license or registration; while eighteen are unregulated. Click here for our matrix of state agencies.  Here you’ll find information on which state’s regulate check cashers, name of state agency and a link to the agency’s site. Do note that rules may vary by state.  If your primary business is not check cashing, you should definitely check your state’s site to make sure you are following regulations for the services you are providing.

Need help understanding your state regulations?

Contact an AllTrust representative at 1-866-280-1679 or at pcssales<at>alltrustnetworks.com.  Or fill in our online form.

FEDERAL

The federal government has their own licensing requirements for money service businesses, regulated by the Financial Crimes Enforcement Network (or FinCEN).  You are considered a money service business by FinCEN if you offer one or more of the following services:

• Money orders
• Traveler’s checks
• Check cashing
• Currency dealing / exchange
• Stored value

AND
Your business conducts more than $1000 in MSB activity with the same person on the same day.

OR
Your business provides money transfer services in any amount.

Be sure to visit http://www.fincen.gov/financial_institutions/msb/ to register.

If you’re cashing checks in Connecticut, your enjoyment of tax season (lots of refund checks) just got cut short.

Walmart announced on Feb 5 that they’ll be cashing checks at all 33 stores in the state.  As with virtually everything at Walmart, prices are tough to beat:

• 1% of face value for checks under $300
• $3.00 flat rate up to $1,000 face value
• $6.00 max charge for amounts up to $5,000

On the other hand, check cashing businesses are still abundant in states where Walmart already cashes checks.   There’s something to be said for location.

Link:  Official Walmart press release