Wednesday, June 30, 2004

Credit unions lure rejects from banks



By Marc Levy
The Associated Press

HARRISBURG, Pa. - Looking to expand their business, credit unions are reaching out to people who lack traditional checking accounts, people who now rely on check-cashing outlets to liquidate their paychecks or get money orders to pay their bills.

"It's not a business to get rich on," warns Jim Petaccio, who runs a check-cashing shop in Willow Grove, outside of Philadelphia. "For the most part, our customers are customers that the banks don't want."

But to the nonprofit credit unions, which face legal restrictions that do not apply to banks, these customers are an opportunity for growth.

Credit unions want to draw customers away from the burgeoning check-cashing outlets by convincing would-be converts that they will pay less for cashing checks and other basic financial services at a credit union.

Credit-union executives do not expect to profit from cashing checks. But they believe that, if such customers join credit unions, they will be more likely to save money and begin using services that provide much of the institutions' revenue.

"The idea of it all is to get them to a point where they can become members of the credit union and take advantage of the services we offer," said John P. Kebles, chief executive of Choice One Federal Credit Union in Wilkes-Barre, which plans to begin a check-cashing service this year.

Check-cashers say the competition will make little difference to their business, which includes money orders, wire transfers and bill-payment services. Many customers, including some with bank accounts, come to check-cashers for the convenience, such as longer hours, and personal service, including multilingual tellers.

Financial Service Centers of America, which represents 5,000 of the country's 11,000 to 14,000 check cashers, estimates that such facilities cash $55 billion in checks annually.

For the nation's 9,300 credit unions, which the Credit Union National Association estimates have $623 billion in assets, there are hurdles.

The federal law authorizing credit unions and its counterparts in most states prohibit most credit unions from providing services, such as cashing checks, to nonmembers.

Credit unions can be created under state or federal law to serve a specific group of people, such as employee or church groups. Originally, many were organized around large industrial employers, like steel mills.

But as their traditional base, such as large manufacturers, has eroded, credit unions increasingly have sought permission to also serve surrounding communities and lobbied lawmakers to loosen laws to allow them to expand their services.

Lawmakers are responding.

Pending in the U.S. Senate is a bill approved by the House in March that would allow federally chartered credit unions to offer check-cashing to anyone who would qualify for membership, even if they do not sign up.

In Michigan, a new law authorizing its state-chartered credit unions to offer such a service went into effect June 1, and similar bills are pending in the California and Ohio legislatures. The bills also would authorize credit unions to provide other services to nonmembers, such as wire transfers and money orders.

In Wisconsin, which already allows credit unions to cash checks for nonmembers within their target communities, First Community Credit Union in Beloit has enrolled an additional 15 to 20 members a month since it began cashing checks for nonmembers a year ago, said its president, Jack Gill. It charges about as much as local check-cashers - $5 to cash a check under $100, and 3 percent for a check over that - and the fees cover the costs of providing and advertising the service.

"In Wisconsin, it's a fairly easy product to offer. ... Why not give it a shot ?" Gill said.

In Pennsylvania, the law is stricter: Credit unions are prohibited from cashing nonmembers' checks in most cases.

In response to credit unions that want to expand check-cashing, the Pennsylvania Credit Union Association has arranged to ensure speedy check-cashing for any first-time customer who agrees to become a member. Participating credit unions contract with Certegy, of St. Petersburg, Fla., to guarantee any check larger than the customer's account balance, eliminating the need to wait several days for the check to clear.

Choice One, which opened in 1941 to serve Bell Telephone employees and their families, plans to introduce its Certegy-backed check-cashing as early as September, Kebles said.

Because it has a special federal status to serve a low-income community, Choice One can cash checks for anyone who lives, works or worships in the local area, regardless of whether they are members. When it introduces the service, Kebles said, Choice One will charge a fee of no more than 1.5 percent - less than many check-cashers charge.




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