New York State Banking Department Announces Recommendation

NEW YORK, NY (12/07/2007)(readMedia)-- In a report to Governor Eliot Spitzer on Nov. 30, the New York State Banking Department recommended a two-year extension of current geographical limitations on state and national banks that offer stand-alone check cashing services in New York.

In the report, the Department considered two provisions of the Banking Law that protect licensed check cashers from competition. One, 369(3), prohibits the Department from licensing a new check casher location within three-tenths of a mile of an existing licensee. The other, 374(3), prohibits a bank from establishing a stand-alone check cashing facility within three-tenths of a mile of an existing licensee. The latter provision is set to expire on Feb. 2, 2008. When the Governor vetoed a bill that would have made the restriction permanent, he asked the Banking Department to reconsider both limits, as well as the restrictions on the fee a licensed check casher may charge.

After exploring a number of options, the final recommendation was based on a study, conducted by the Banking Department’s Financial Services Research Unit, of the performances of New York state check cashers from 1993 (the year before the geographical limitation was imposed) to 2006.

The Department’s report found that the check cashing industry is currently in a state of change due to the declining volume of checks cashed and the cost of compliance with anti-money laundering laws. This flux in the industry is one of the reasons that the Department suggested maintaining the status quo while monitoring the market.

“A stable source of financing is necessary for a healthy industry, and the banks that provide the financing to New York check cashers consider the geographic limits important in determining the terms on which they will provide credit.” said Richard H. Neiman, Superintendent of Banks. “Because geographic limits are a stabilizing factor in this industry, we believe it will be in the best interest of consumers that we extend that sunset date and revisit the matter when the market is more settled.”

The study, which addressed the effect of geographical and fee restrictions on check cashing businesses by analyzing average fees and location closures, also concluded the elimination of such restrictions may not increase competition in lower-income neighborhoods, which may be under-banked and in need of services. An increase in competition would vary according to whether a check casher was located in an upper/middle or moderate/lower income neighborhood. The number of check cashers in low-income areas has remained flat since 1993, while the number of offices in upper/middle income areas has increased significantly.

The Banking Department regulates check cashers and establishes the maximum fee that a licensed check casher may charge for cashing a check, draft or money order; currently 1.7 percent of the check amount.

The New York State Banking Department is the regulator for all state-chartered banking institutions, virtually all of the United States offices of international banking institutions, all of the State’s mortgage brokers, mortgage bankers, check cashers, money transmitters and budget planners. The aggregate assets of the depository institutions supervised by the Banking Department are more than $1.8 trillion.

In addition to regulating banking institutions, the Banking Department is active in informing and educating all New Yorkers on banking matters. To contact the Banking Department, please call 1-877-BANK-NYS or visit our Web site at www.banking.state.ny.us.

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