HOUSE BILL REPORT

HB 1441

BYRepresentatives Lux, Zellinsky, Chandler, Winsley, Silver, Nutley, Ferguson, O'Brien, Anderson, Dorn, Wineberry, Patrick, Meyers, Crane, Nelson, Cooper, Locke, H. Sommers, Jacobsen, Wang, P. King, Sayan, May, Leonard and K. Wilson 

Regulating check cashers.

House Committe on Financial Institutions & Insurance

Majority Report:  The substitute bill be substituted therefor and the substitute bill do pass.  (10)

      Signed by Representatives Lux, Chair; Anderson, Chandler, Crane, Day, Dorn, Grimm, P. King, Nutley and Winsley.

Minority Report:  Do not pass.  (4)

      Signed by Representatives Zellinsky, Vice Chair; Betrozoff, Ferguson and Silver.

House Staff:John Conniff (786-7119)

AS REPORTED BY COMMITTEE ON FINANCIAL INSTITUTIONS & INSURANCE

FEBRUARY 1, 1988

BACKGROUND:

More than eleven companies, engaged in business in Washington, offer check cashing services. A few of these companies do business at several locations. In addition to cashing checks, many of these companies lend money and issue checks such as money orders.

The fees charged for cashing a check range from 2 - 25% of the face amount of the check depending upon the identification presented and upon whether the person cashing the check is a first or second time customer. Fees charged for advancing money on a post-dated check or for advancing money on a bank credit card range from 12% of the amount advanced to a formula based upon Western Union rates - e.g. $17.50 for a $300 advance.

Washington does not regulate check cashing companies. Other states such as New York and California have regulated these companies for many years.

SUMMARY:

SUBSTITUTE BILL:  "Check casher or seller" and "licensee" are defined. The act applies to organizations that, for compensation, engages in the business of cashing or selling checks, drafts, money orders, or other commercial paper serving the same purpose.

The act does not apply to financial institutions or to other organizations that cash checks as a convenience, as a minor part of its business, and not for profit; to the issuance or sale of checks by companies with a net worth of more than five million dollars; or to the issuance or sale of checks by agents of companies with a net worth of more than five million dollars.

Upon application to the Supervisor, the supervisor may exempt an organization not otherwise exempt under the act from all or a part of the provisions of the act if the supervisor finds that the applicant is not primarily engaged in the business of cashing checks and such exemption would not be detrimental to the public.

Unless exempt, no check casher or seller may engage in business without first obtaining a license from the supervisor of banking. The applicant must pay a fee established by the supervisor to cover the costs of regulation.

If the applicant will sell checks, the applicant must obtain and maintain a fidelity bond for officers and employees in an amount determined by the supervisor. The applicant may deposit security in lieu of a bond.

The supervisor, after investigation, shall issue a license if the supervisor determines that the applicant is financially responsible, that the applicant appears able to conduct business in an honest, fair, and efficient manner with the trust and confidence of the public, and that the applicant has met all other requirements for licensing.

The supervisor may deny a license if the applicant or a substantial stockholder of the applicant has been convicted of certain crimes or had a prior license revoked in the twelve months preceding the new application.

The license must be conspicuously posted by the licensee. The license is not transferrable and remains in effect for one year.

A license may be renewed upon payment of the proper fee and upon approval according to the same standards for original issuance.

The supervisor shall adopt rules establishing the maximum fees that may be charged for cashing or selling checks. In establishing the fee schedule, the supervisor must consider the licensee's cost in providing service, the relative risk of nonpayment or dishonor of a cashed check, the amount of profit to the licensee, and other factors deemed relevant by the supervisor.

The schedule of fees established by the supervisor must be conspicuously posted by the licensee.

Fees in effect prior to the effective date of the act remain in effect until the supervisor adopts a fee schedule.

Licensees must keep and maintain such business records as required by the supervisor to fulfill the purposes of the act.

Every check cashed by a licensee must be endorsed with the stamp "licensed casher of checks."

Checks sold by a licensee must be drawn on an account in a financial institution authorized to do business in Washington.

No licensee may lend money or credit, or engage in the business of discounting notes or checks. No loan business may be conducted on the same premises as the check cashing and selling business.

No licensee may cash post-dated checks unless the check is a government or payroll check payable on the next banking day.

No check may be sold unless the licensee concurrently receives full payment for the check in cash or by check, draft, or money order believed to be valid.

No licensee may sell checks payable to the bearer except a check that does not designate the payee and does not exceed $150.

No licensee may engage in false or deceptive advertising and no licensee may advertise the fact that they are regulated by the supervisor of banking.

All funds received by a licensee from the sale of checks must be maintained in a trust account in a local financial institution.

Each licensee must submit an annual financial report to the supervisor and must submit an audit report within 105 days of surrendering a license.

The supervisor may examine the books and records of licensees.

The supervisor may issue cease and desist orders in conformance with administrative procedures.

The supervisor may issue a cease and desist order to take effect upon service if the supervisor finds that a practice by a licensee may lead to insolvency or may result in substantial injury to the public.

A licensee may apply to the appropriate superior court to set aside a cease and desist order.

The supervisor may apply to a superior court for an injunction if a licensee violates or threatens to violate a cease and desist order.

If, as a result of an examination, the supervisor determines that a licensee's capital is impaired, that the licensee is conducting business in an unsafe and unsound manner, that the licensee has suspended its obligations to pay money into the trust account, or that the licensee has failed to comply with certain other regulatory or statutory requirements, the supervisor may take possession of the licensee's business until the licensee resumes business in compliance with the act or the business is liquidated as provided in the act.

The supervisor is granted the same possession and liquidation rights as exist for industrial loan companies.

The attorney general is authorized to recover a fine of not more than $100 for each violation of the act by a licensee.

A violation of the act constitutes a misdemeanor offense and is subject to the Consumer Protection Act.

SUBSTITUTE BILL COMPARED TO ORIGINAL:  Sales of checks by companies with a net worth in excess of five million and sales of checks by these companies' agents are exempt from regulation.  Provisions that prohibited the transmission of money by licensees are deleted.  Bond and liquid capital requirements of check cashers are deleted.  Consumer Protection Act remedies are added and technical changes are made.

Fiscal Note:      Requested January 11, 1988.

Effective Date:The bill takes effect on January 1, 1989.

House Committee ‑ Testified For:    Bruce Neas, Puget Sound Legal Assistance and Tom Oldfield, Supervisor of Banking.

House Committee - Testified Against:      Joseph J. Wozniak, Check Express; Mark McDonald, Check Mart; Derald Grow, Western Union; Dennis Bassford, CheckXChange and T. K. Bentler, Lobbyist.

House Committee - Testimony For:    Some check cashing companies are charging an excessive amount for cashing government and other checks.  These high charges adversely affect the poor, the elderly and the recent immigrant who do not have bank accounts.  In addition, some check cashers are engaged in questionable lending practices.  Some check sellers may or may not be able to pay the checks that been sold to the public.

House Committee - Testimony Against:      Check cashing and selling fees should not be regulated.  The check selling provisions should not apply to large companies such as American Express and check cashers should be able to transmit money through Western Union.