SENATE BILL REPORT
EHB 1283
BYRepresentatives Zellinsky, Chandler, Dellwo, Crane, Day, P. King, Schmidt, Winsley, Beck, Anderson, Nutley, Dorn, K. Wilson, Baugher, Betrozoff and Silver
Regulating check cashers and sellers.
House Committe on Financial Institutions & Insurance
Senate Committee on Financial Institutions & Insurance
Senate Hearing Date(s):March 30, 1989; March 31, 1989
Majority Report: Do pass as amended.
Signed by Senators von Reichbauer, Chairman; Johnson, Vice Chairman; McMullen, Matson, Rasmussen, Smitherman.
Senate Staff:Benson Porter (786-7470)
March 31, 1989
AS REPORTED BY COMMITTEE ON FINANCIAL INSTITUTIONS & INSURANCE, MARCH 31, 1989
BACKGROUND:
More than 11 companies offer check cashing services in Washington. A few of these companies do business at several locations and many lend money and sell checks such as money orders.
Check cashing companies engaged in lending activities often take advantage of the pawn brokers statute to charge a rate of interest exceeding the state usury limits. The pawn broker statute allows a pawn broker to accept personal property (e.g. a watch or ring) and loan the customer funds that must be repaid before the property is returned. Technically, a personal check or similar instrument constitutes personal property allowing the pawn broker to loan funds on a post-dated check. Since pawn brokers are defined as any person who makes certain loans secured by personal property, a check cashing company can claim to act as a pawn broker in order to obtain the fees authorized under the pawn broker statute. (e.g., for amounts up to $19.99 - interest at $1 a month and for amounts in excess of $126 - 3 percent a month.) An informal Attorney General's opinion has expressed that such activity may violate the state pawn broking and usury statutes.
Most check cashing companies that sell checks act as an agent for a major check company or for other companies who forward cash. As agents for these companies, the check cashing companies are not relying upon their own assets to pay these checks. However, some businesses issue checks drawn upon their own business account. A customer purchasing a check drawn upon a business's own account risks having the check later dishonored for insufficient funds.
No state statute specifically governs the activities of check sellers or regulates check cashing companies. Other states such as New York and California regulate these companies.
SUMMARY:
Those entities defined as a "check casher or seller" must meet certain licensing and regulatory requirements prescribed under the act.
The act does not apply to financial institutions or to other organizations that cash checks as a convenience and not for profit. Moreover, the sale of checks by companies with a net worth exceeding $5 million or by agents of such companies are exempted from the act. Other organizations may be exempted from the provision(s) of the act if the Supervisor of Banking finds certain criteria are met.
Unless exempt, no check casher or seller may engage in business without obtaining and maintaining a license from the supervisor. A license shall be issued if the supervisor determines that the applicant meets certain requirements prescribed under the act. The supervisor may deny a license if the applicant or a substantial stockholder of the applicant has been convicted of a felony or had a prior license revoked in the 12 months preceding the new application. Other provisions concerning the public display of the license, the transferability and term of the license, and fees are included in the act.
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. Checks sold by a licensee must be drawn on an account in a financial institution authorized to do business in Washington. 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. All funds received from the sale of checks must be maintained in a trust account in a local financial institution.
Except for permissible pawn broker activities, no licensee may lend money unless the licensee obtains the appropriate lending license and physically separates the lending business from the check cashing operation to the approval of the supervisor.
No licensee may cash post-dated checks unless the check is a government or payroll check payable on the next banking day. Further, no licensee may engage in false or deceptive advertising and advertise the fact that they are regulated by the state.
The supervisor is authorized to examine the books and records of licensees, obtain specified financial reports, and take certain regulatory actions. A licensee may apply to the appropriate superior court to set aside a cease and desist order.
If the supervisor finds that a licensee's capital is impaired, the licensee is conducting business in an unsafe and unsound manner or fails to meet its trust account obligations, or the licensee has failed to comply with other requirements, the supervisor may take possession of the licensee's business until the licensee complies with the act or the business is liquidated. The supervisor is granted the same possession and liquidation rights as exist for industrial loan companies.
A violation of the act constitutes a misdemeanor offense and is subject to the Consumer Protection Act. The Attorney General is authorized to recover a fine of not more than $100 for each violation of the act by a licensee.
The pawn broker statute is amended to exclude certain financial instruments from the definition of personal property. Thus, a pawn broker would be precluded from making loans secured by personal checks and check cashers would be precluded from utilizing the pawn broker statute in making loans.
The pawn broker statute is amended to prohibit pawn brokers from engaging in the business of cashing and selling checks unless such activity conforms to the requirements of the check cashing and selling act.
Appropriation: none
Revenue: none
Fiscal Note: available
SUMMARY OF PROPOSED SENATE AMENDMENT:
The provision excluding certain financial instruments from the definition of personal property within the pawn broker statute is deleted.
Senate Committee - Testified: Randy Vanek, Computerized Capital, Inc.; Mark McDonald, CheckMart, Inc.; Lt. Col. Robert Griffin, Chief, Family Support Division, Fort Lewis; Steve Wehrly; Darryl Wells (con); Pat Agnew (con); J.D. Miller (con); Roger Shepard, Financial Planning Coordinator, Fort Lewis (pro); Jim Salatino, Advance Checking (con)