We have had less than positive experience with our check cashing business customers. Can anyone point me to some good articles or information on the riskiness of these businesses?

What is it you would like to know? I am in the check cashing business and though there are risks involved because of check fraud, these losses are off set by the fees we charge for cashing the checks.

I don't know of any articles but in my own experience the losses occurr when these business have a limited operating funds and then have a lot of checks they have cashed returned for any number of reasons. Like any other business they cannot sustain these losses for very long.

The daily maintenance of these accounts is very high and costly due to te number of items processed and the high number of returned items. They may also have an impact on the amout of vault cash required.

These businesses are also prime to be hit with stolen checks, identity theft, and while they charge a hefty fee its not always enough if they do not have good internal controls or management.

When they go away it usually very quick and over night. The bank is then left with a loss on any items that are then charged back.

Again from my 30 year experience and association with many bankers at other institutions who have similar experiences with this type of account, the loss rate is high.

The best bet is never give immediate credit and enforce the hold requirements for as long as you legally can.

Are the check cashing entities registered MSB's with the Treasury Dept.? A search on Lexis-Nexis will pull up some good articles about this.

If I might weigh in with my own experience - we dealt a few years ago with a start up and put together a special program for him - IN order for him to turn and immediately receive cash against the checks (generally foreign) that he deposited, he put up a collateral CD. We asked him not to take checks payable to businesses and no third party checks. We also suggested, but did not require, that he only take checks issued from banks in this area. We showed him how to call banks and check to see if funds were available at the time he was taking the check - etc, etc, etc - I think we also turned him onto an association web-site. Came down to it- his loss rate was actually pretty low - where he got into trouble a couple of times was I think he got 'blinded' by potential fee income on a large item, and got burned - even though he admitted later - 'I knew something was up' - Now for the short version - if you're not familar with dealing with Check Cashing stores, you will probably want to educate yourself before dealing with them - between the large amount of items coming in and the cash they require, it can be a headache - in our situation we (the bank and the store) mutually agreed upon some guidelines and made it work!!!

Thanks for taking the time to reply!

To piggyback off this post. I have recently been given the responsibilty of BSA Officer for the bank. In a few weeks our Regulator is due in for an exam. Today I was asked by the from the lead examiner about the verification process we take with check cashing companies. I have looked at the reg. and see no requirement that the bank verify these companies are registered. I know it is their responsibility to register as MSB's but can find no requirement from our side. Would appreciate any advice.

I agree that there is no BSA requirement that you verify registration of the MSB. However, you need to know your customer, and this need is stronger when you're dealing with a higher-risk customer, including MSBs. If obtaining verification of their registration will give your bank a better comfort level about whom you're dealing with, it's a good idea.

Welcome, TGIF, to the wonderful world of BSA invent-a-reg (Lucy G's word for CRA). Regulators are looking closely to see if we are identifying high risk entities and performing due diligence reviews to make sure everything looks OK. They want to see reviews on both exempt and non-exempt entities. The OCC has a good discussion of due diligence and high risk entities in the OCC BSA/Anti-Money Laundering Handbook.