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Banks Shying Away From National Company

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Note: The following is a message received from a representative of a business that operates or franchises rent-to-own stores all over the country. I have removed all references to the specific business. We have several bank relationships for store depository accounts (about 350). Several of the bank relationships that we use for store deposits have "pushed back" on us accepting third party checks. If a third party check is a legal tender, and the depositor is liable for the risk, why do they have a concern about our acceptance of third party checks? Also, is there a form letter or legal document that we can sign that will put the banks at ease about our acceptance of third party checks without opening ourselves up to all risk of fraud with an indemnity agreement?

I'm going to hazard an educated guess on the reason for these banks' reluctance to deal with these checks.

Deposits of third party checks look to many banks a lot like the depositor is operating a check cashing business. And in many respects that is a valid assumption.

Banks have been told by their regulators to watch out for check cashing businesses and other non-banks that do what has been defined as "financial institution" business. That includes, in addition to check cashing, things like money transfer, sales and redemption of money orders, etc. For more information, go to where you'll find a definition of "money services businesses."

Regardless of the fact that most of these businesses are honest and above-board, and provide limited financial services that are obviously needed, check cashers and other non-bank financial institutions are considered prime targets as conduits for money laundering and terrorist financing. Banks have been reluctantly cast as law enforcement surrogates, since government hasn't yet found a way to effectively regulate these businesses itself.

That role as "detective" and "cop" are not one that banks enjoy playing. It is extremely expensive, and it detracts from running the business of banking. Consequently, many banks are shying away from any business that looks remotely like a non-bank financial services business.

So, because your company apparently fits at least part of the "profile" because of its deposit of third party checks, it's possible it's being painted with the same brush as true check cashers.

I suggest the company sit down with some of its key bankers and strategize on how the company can rid itself of the check cashing image (if that's truly the banks' agenda), or reconsider whether to continue accepting third-party checks in payment for its services.

First published on 2/7/05

First published on 02/07/2005

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