HOUSE BILL REPORT
HB 2614
BYRepresentatives Dellwo, Chandler, Nutley, Zellinsky, Inslee, Anderson, Crane and Scott
Regulating check cashers and sellers.
House Committe on Financial Institutions & Insurance
Majority Report: Do pass. (14)
Signed by Representatives Dellwo, Chair; Zellinsky, Vice Chair; Chandler, Ranking Republican Member; Anderson, Baugher, Beck, Crane, Day, Dorn, Inslee, Nutley, Schmidt, K. Wilson and Winsley.
House Staff:John Conniff (786-7119)
AS REPORTED BY COMMITTEE ON FINANCIAL INSTITUTIONS & INSURANCE
JANUARY 19, 1990
BACKGROUND:
In the past five years, a new kind of business has developed in Washington devoted exclusively to the cashing of checks and other commercial paper. In addition to cashing checks, many of these companies lend money and sell checks such as money orders.
Check cashing companies lend money by cashing post-dated checks at a discount. Another way in which check cashing companies engage in lending is by agreeing to hold a currently dated check for a specified length of time. Most companies argue that these transactions are not loans but rather are check cashing services with the fees representing the cost to cash the check. Others argue that the discounting of checks or cashing of post-dated checks are similar to pawnbrokering thereby permitting the company to charge interest and fees permitted under the pawnbroker statute.
An informal opinion of the Attorney General's Office noted that despite the characterization of these transactions as check cashing services, the investigated transactions constitute loans that violate federal Truth-in-Lending Act regulations and the state usury statute.
In addition to cashing checks, check cashing companies also sell checks. Most companies selling checks act as an agent for a major check company such as American Express. Some check cashing companies act as agents for other companies who forward cash such as Western Union. As agents for these companies, the check cashing companies are not relying upon their own assets to cover the checks that are sold. However, some businesses, whether calling themselves check cashing companies or not, 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.
SUMMARY:
Check cashing companies are required to obtain a license from the supervisor of banking who is authorized to regulate check cashing and selling operations. Financial institutions and other organizations that cash checks as a convenience, as a minor part of its business, and not for profit are exempt from regulation. In addition, the issuance or sale of checks by companies with a net worth of more than $5,000,000 and the issuance or sale of checks by agents of these companies are exempt from regulation.
Licensees must post a schedule of their fees and charges. Fees and charges for the cashing of state and federal government checks may not exceed an amount set by the supervisor of banking. In setting the maximum fee, the supervisor must allow for a reasonable profit, taking into account the cost and risk in providing the service.
No licensee may lend money or credit unless the licensee obtains a license to act as a finance company and 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 licensee may agree to hold a check for later deposit. All checks cashed must be deposited as soon as practicable.
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 engage in false or deceptive advertising and no licensee may advertise the fact that they are regulated by the supervisor of banking.
No licensee may cash or advance moneys on a check or draft whose face amount exceeds $2,500
A violation of the act constitutes a misdemeanor offense and is subject to the Consumer Protection Act.
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.
Fiscal Note: Requested January 19, 1990.
Effective Date:The bill takes effect on January 1, 1991.
House Committee ‑ Testified For: Dan Grimm, State Treasurer; Mike Grant, Attorney General's Office; Phil Kaplan, Washington Poverty Law Advocates; Shawn Fitzgerald, Fair Budget Action Campaign; Tony Lee, Washington Association of Churches; Evan Iverson, Senior Citizens Lobby; and Roger Shepard, Army Community Services.
House Committee - Testified Against: Mark McDonald, Check Mart, Inc.; Dennis Bassord, Check-X-Change; Randall Vanek, Computer Capital, Inc. and Richard Woods, Check-X-Change.
House Committee - Testimony For: Check cashing companies should not be permitted to charge high fees for the cashing of state government checks. There is little risk of nonpayment on state checks and the amount paid to cash these checks takes money away from people who can least afford to pay. Check cashing companies should also be prohibited from cashing checks whose face amount exceeds a certain limit. Common sense should dictate that a problem may exist if a person is willing to pay a large sum of money to cash a check with a high face amount. The lending activities of check cashing companies violate the state usury statute and create problems for military personnel who delay seeking financial assistance as long as they can continue to cash post-dated checks.
House Committee - Testimony Against: The regulation of check cashing companies is inappropriate if such regulation includes limits on the fees that check cashing companies can charge. Check cashing companies operate on a slim profit margin and must charge sufficient fees to cover losses and remain profitable. Not all check cashing companies engage in lending activities and these companies do not object to requiring companies to obtain a lending license before engaging in a loan business. The state should not limit the amount of a check that a company can cash. There are many reasons why a person would come to a check cashing company to cash a large check in an emergency. These large transactions present a rare opportunity for companies to earn enough to make a profit. For those few companies engaged in check selling based upon the company's own funds, the check selling regulations are too stringent.