Check Cashing Laws and Regulation

June 14, 2017

Check cashing laws and regulations are set in place by government bodies to prevent financial fraud. Check cashers fall into one of two categories: regulated or unregulated. Regulated check cashers are those who cash over $1,000 per day per customer. Unregulated check cashers are those who cash less than $1,000 per day per customer and they are not subject to federal regulation governing the industry. For regulated check cashing businesses, adhering to industry regulation is essential for avoiding fines or mandatory business shut downs.

Check Cashing Industry Laws & Regulations

Check cashers are regulated as money service businesses under the Financial Crimes Enforcement Network (FinCEN). This governing body of the U.S. Department of the Treasury defines a money service business as any of the following:

  1. Currency dealer or exchanger
  2. Check casher
  3. Issuer of traveler’s checks, money orders or stored value
  4. Seller or redeemer of traveler’s checks, money orders or stored value
  5. Money transmitter
  6. U.S. Postal Service

As an MSB, check cashers are required to register with the Department of the Treasury. The owner of a check cashing business must register within 180 days of the business being established. To register, the owner must complete the Registration of Money Services Business, FinCEN Form 107, and file it with FinCEN. For current requirements and important updates, check cashers are advised to refer to the official FinCEN website.
FinCEN is primarily responsible for enforcing the Bank Secrecy Act (BSA) of 1970. The BSA was enacted to encourage cooperation and communication between the government, law enforcement agencies, and financial institutions in the detection, prevention, and prosecution of financial crimes. The US Patriot Act updated the BSA with further measures to prevent terrorist financing.
BSA requirements for licensed check cashers include:

  1. Independent reviews
  2. Registration and registration renewal
  3. Maintenance of an MSB agent list
  4. Suspicious Activity Reporting (SARs)
  5. Establishment of a written Anti-Money Laundering (AML) program
  6. Currency  Transaction Reports (CTRs)
  7. Records for transmittal of funds, purchase of bank checks, cashier’s checks, money orders, traveler’s checks, prepaid access cards
  8. Record collection and retention process

Each process is designed to facilitate communication and create a record of suspicious activity for easier prosecution down the road. Meticulous record-keeping also helps FinCEN spot trends in financial fraud and update their regulations accordingly. To ensure that you are up to date with the latest check cashing laws, it is important to designate a compliance point person for your business. This person is responsible for drafting and maintaining your compliance program. As changes come down the line, your compliance team will make sure your business is up to date.

Current Trends Affecting Check Cashing Laws

The check cashing industry cashes over $60 billion (estimates vary) annually while employing over 83,000 individuals at around 16,500 locations. Check cashing businesses can be either “stand alone” check cashing outlets or retail check cashing locations. Retail check cashing refers to businesses who offer alternative financial service in addition to their core business: grocery, bodega, convenience store, gas station, liquor store, restaurant, or beauty shop.
The advent of FinTech and mobile money are spurring changes within the check cashing industry. While these developments are not in direct competition with the check cashing industry, they are encouraging check cashers to think creatively about their businesses. For retail check cashers, offering convenient “one stop” shopping is the selling point for customers. Retail check cashers can add additional services to their location to attract new customers and better serve their existing customer base. Loyalty programs and special customer-only deals can also help retail check cashers differentiate themselves.
Some check cashers are looking to harness the power of mobile money for their own business. One concept is to allow existing customers to use Remote Deposit Capture to scan their checks into an app and then pick up their cash (waiting and ready for them) at their favorite check cashing business. The app can track customer loyalty and offer special promotions.  Physical check cashing locations continue to be important to serve communities without bank branches – and those who don’t own a smartphone.
On the regulatory front, government bodies are cracking down on AML regulation, handing down penalties and fines for infractions. As regulators tighten their enforcement of existing AML regulation and add new rules, some financial institutions are engaging in derisking. In order to shed their risk, rather than manage it, these banks are shutting out entire industries. The check cashing industry is an example of an industry affected by derisking. Check cashers, even those with longstanding banking relationships, are losing their check cashing bank accounts. This trend is putting the entire industry on edge and adding a new worry for business owners who are also trying to stay on top of regulation.

Operating a Compliant Check Cashing Business

How can check cashers keep track of the laws and regulations that apply to their operations? Implementing strong business processes and building a compliance program (for licensed check cashers) are both crucial. Employing a compliance expert ensures that your business stays ahead of the regulatory curve, implementing new protocols before they become mandatory and avoiding delayed adoption of new techniques.
Investing in cutting edge check cashing technology is another way to stay current. An advanced POS system allows you to capture all of the required Know Your Customer data points for strong compliance. This data is immediately transmitted to your bank and is filed appropriately for your business records. Clear and timely communication helps you work together with your financial institution to detect fraud and prevent it from entering your check cashing business.
Finding a reliable check cashing bank account is also essential for owning and operating a successful check cashing business. In the midst of derisking, NCC offers a real solution for check cashing businesses: check cashing business bank accounts. NCC works with a network of banks to provide a complete banking solution, backed by the network itself. What does this mean? If one bank decides to shed risk, there is an entire network waiting to scoop up your bank account. Your business does not have to close and there is no interruption in service to your customers.
NCC’s team of check cashing experts provide 24/7 support for a strong compliance program. They also ensure that you are ahead of the latest laws and using the most advanced technology to run an efficient business. MSB bank accounts are open to both licensed and unlicensed check cashers. Fill out a form on our website or call us today to open your own business bank account.

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