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Testimony by the hearing's first witness, State Banking Commissioner Parell, helped to set the stage for the remainder of the forum. Questioned by Executive Director James J. Morley, she noted that no state regulated check cashers until the mid-1940s when New York and Illinois enacted control laws, followed in 1951 by New Jersey's Check Cashing Law. California also enacted a law but repealed it in 1983. However, that state's 1988 legislature is considering proposals to reinstate controls over check cashers. Parell said New Jersey's statute was modeled after New York's, which was adopted to control such abuses as fee-gouging, loansharking and tax evasion. She reviewed various provisions of the New Jersey statute, including its fee limitations of 1 percent on checks drawn on New Jersey financial institutions and 11/2 percent on out-of-state checks, and its prohibitions against loans or discounting of checks and against cashing post-dated checks. She recalled that a requirement that licensees maintain net worth and liquid assets of $5,000 was increased in 1985 to $50,000. She said a 1964 amendment repealed any limitation on the face amount of check cashing transactions and that a 1979 revision replaced criminal sanctions for violations of the law with civil penalties of $1,000 per offense, plus license forfeiture or nonrenewal. Reflecting the Commission's concerns about the viability of the statute, Morley requested clarification of the 1979 change:
Q. Do you have any understanding of why the criminal sanctions in the statute were removed and replaced by civil penalties?
A. It's my understanding that that has been part of a general effort over a long period of time by my Department to decriminalize the regulatory process, enabling my Department in general to be able to handle the matter from beginning to end and impose regulatory [or] civil sanctions effectively. As you know, the standard of proof is lower. We can move more quickly and efficiently, theoretically, if the Department is able to seek and impose the sanctions, so that has been the general theory under which most of our statutes have been decriminalized.
200 Percent Increase In Out-of State Check Cashing
Pointing to the Commission's "Check Casher Activity" chart (see p. 2), Morley noted that there had been a 200 percent increase from 1984 to 1986 in the amount of out-of-state checks cashed (from $69 million to $205 million) as against a 27 percent rise in the cashing of in-state checks (from $673 million to $855 million). He sought an explanation:
Q. Is there any suspicion on the part of your Department-and you have to rely on the records of the check casher-that the dollar amount of out-of-state checks is under-reported to any degree?
A. Yes. It has come to my attention that certain check cashers were reporting to us as in-state checks an indeterminate number of out-ofstate checks, and they were doing this under the erroneous view that if they were only charging the 1 percent fee as for an in-state check, they could lump all of their checks together. This has not been a widespread practice, and we have taken steps to correct it in the future; however, that figure is under-reported, I believe.
Q. Does the Department have any opinion as to why the out-of-state dollars are increasing so disproportionately?
A. I can give you some factors that may be contributing to this, although they don't serve as a full explanation in my mind. First of all, many of the out-of-state checks appear to emanate from New York State which, of course, is very close to us. The New York check cashing law has a $2,500 per check limit, with the exclusion of certain government checks and insurance proceeds and certified checks, so any check over $2,500 that a person would want to present to a check casher in the New York-metropolitan area, that check will come to New Jersey at this point under our law. Furthermore, I understand that in New York almost all of the check casher bank accounts are in only one depository institution, namely Manufacturers Hanover, and that that bank has a policy against permitting check cashers to deposit corporate checks. So despite the fact that the New York law does not discriminate between natural persons and businesses, the depository does, so again corporate checks from out of state in the metropolitan area are likely to go to New Jersey.
Counsel Morley displayed another SCI chart demonstrating where in New Jersey the $205 million in out-of-state checks were cashed-44 percent in Hudson County, 29 percent in Essex and 27 percent in all other counties.)
Q. As is plain from the chart, the overwhelming majority of the out-of-state checks, almost three-quarters, were cashed in Hudson and Essex counties. Could you tell us what you think causes that phenomenon?
A. Well, first of all, the preponderance of check cashers are located in those areas, anyway, for various reasons including the high population, the relatively low income of the population and the fact that there are many small industries in that area [such as] small manufacturing concerns, transportation, garment. That doesn't explain the out-of-state. It just explains a heavy concentration in those two counties. As to the out-of-state, I think location is the primary key, location near to New York.
Morley next called for the Commission's chart
illustrating how many check cashing entities are
located in each county of the state.** The number
such entities ranged from 28 and 16 in Essex
and Hudson to seven in Passaic and Camden, five
Middlesex and Mercer, four in Union, three in
Bergen, two in Atlantic. Four counties had only
Dne check casher each and the remaining eight
had none. Morley again noted the heavy concentration of check cashers in certain areas:
Q. As you've testified, there's an obvious heavy concentration in Essex and Hudson counties and in the northeastern corner of the state in general. Let me ask you this: As opposed to the regulatory restraints that exist in New York, and which may, in addition to socio-economic factors, contribute to the concentration of check cashers in the northeast, what's the situation from a regulatory point of view in Pennsylvania?
A. Nothing.
Q. And I suppose, conversely, then that would contribute at least to some degree to the lack of activity in out-of-state checks in the south?
A. Except, you see, Camden, and its urban nature I think explains the numbers there.
"Exhaustive" Application Process
Commissioner Parell described in detail the process for reviewing and acting upon license applications, a complicated process that includes fingerprints, fiscal audits and character references, among other requirements. She described the procedure as "pretty lengthy and pretty exhaustive." Chairman Patterson pressed her for more details:
CHAIRMAN PATTERSON: Commissioner, how long does the process usually take?
WITNESS: Mr. Chairman, it's a very lengthy process. We have I think in the past four years entertained approximately 30 applications. Of those to date five have been granted. The rest are in various stages of processing ... Three of the approximately five which we licensed have been opposed in litigation by other check cashers through their trade association and we have pursued the litigation up through the Appellate Division, receiving during the past four months three favorable decisions.
CHAIRMAN PATTERSON: So an applicant can expect to spend perhaps 18 months in the process of being approved or disapproved?
WITNESS: That's right.
CHAIRMAN PATTERSON: And then faces a lawsuit to boot?
WITNESS: Oh, absolutely. This lawsuit business is very much with us at the present but all other things being equal ... we could probably get it done in a year or 18 months.
Parell testified that for fiscal 1988 her Department's Consumer Credit Bureau scheduled 27 audits of check cashers, or almost a third of the total licensees. The Bureau, however, is also responsible for examining numerous other licensed financial services, she added, such as small loan lenders, secondary mortgage lenders, state-chartered credit unions, foreign money remitters, and insurance premium finance lenders. Unlike check cashers, audits of some financial services are mandated by law. Morley's questioning reflected the Commission's concern about the DOB's physical ability to maintain an effective examination pace:
Q. Even in the area of those institutions which have mandatory examination requirements is the Department, given present resources, able to meet the statutory mandate?
A. I regret to say that we are not. This is something that we annually report in our budget submissions.
Q. You mentioned some of the statutes are under review, and I would suppose that the effort is to conform the statutes to the realities?
A. Even as we constantly endeavor to conform our capabilities to what we would consider to be the standard.
Q. Now, how large a staff are you authorized in the Bureau?
A. Our current authorization is at 11. We also have two examiners on loan from the Banking Division and as of last year we were authorized to augment by five additional positions, four of them professional; however, we're going to have to substitute out the two on loan. But may I add, please, that as of the most recent budget hearings we have stated that our number one priority for this year is to establish a Special Investigations Unit, which I regard as being potentially very important to enable my examiners to get out in the field more.
Q. In your opinion, assuming that you had the opportunity to put the Consumer Credit Bureau in whatever shape you thought was the best, will those numbers of examiners enable you to conduct the number of examinations that you feel should be conducted each year by the Bureau?
A. ... If we were able to keep at the job, then the staffing which I have just described to you will enable us to get to each licensee once every two years physically and do spot checks ... Once every two years is the best I can do with what I'm looking at in terms of a full complement under existing current requirements.
CHAIRMAN PATTERSON: But you said you preferred to do it every year?
WITNESS: I would prefer to do it every year, Mr. Patterson, but if I'm only getting to onethird of my licensees on average now, then you would have to triple my staff and give me a Special Investigations Unit.
No Limits On Check Amounts in New Jersey
At the conclusion of Morley's discussion with Parell, various SCI commissioners requested clarification on areas of her testimony.
Commissioner W. Hunt Dumont questioned Parell about the lack of a limitation on the face amount of the checks that can be cashed in New Jersey compared to New York's $2,500 limit:
COMMISSIONER DUMONT: Do we have any idea about how many checks are over $2,500 as opposed to those under?
WITNESS: Yes. I can't quantify it for you because the basic reporting would not reveal that but when we do an in-depth study of what we would consider to be a problem licensee, that's the kind of thing we look for and what we do find is a bulk of checks which exceed $2,500.
COMMISSIONER DUMONT: And do we know the source or sources of these higher checks?
WITNESS: Many of them are out-of-state.
Commissioner Dumont also asked whether the prolonged licensing process was a reason for check cashers operating without licenses:
COMMISSIONER DUMONT: You indicated there's an unusually long process to obtain a license. Do you feel this discourages [individuals] from getting a license; therefore, we have a higher incidence of unlicensed check cashers or is that not a fact?
WITNESS: First of all-the answer is yes, clearly. The lengthy time frame, the amount of disclosure, the submission of fingerprints for everybody who works in the place, all of these requirements, while they have a legitimate public purpose, I'm sure [they] have the effect of discouraging a greater number of licensed check cashers. A $50,000 capital and net worth requirement and a $50,000 liquid asset requirement is very high. It's not the sort of thing that your average corner enterprise is likely to want to maintain just for the privilege of taking a fee to cash checks.
COMMISSIONER DUMONT: Do you see a way to streamline the process without sacrificing the benefits of that process?
WITNESS: I think that could be done to-up to a degree and among my recommendations will be that we drop back to the capital level and liquid assets level that New York has now, which is $10,000. Their's was originally $5,000 like ours and they clearly recognized this balance problem, that one might argue that you need higher financial wherewithal in order to make this more of an industry, you know, more of a distinct industry. Others might argue, "Let's make the service, this legitimate service, more freely available in the community." .. . On the other hand, we have to be very rigorous because of the historical potential which is still very much with us for civil and criminal abuse.
Commissioner Barry H. Evenchick asked about the litigation that has confronted prospective licensees:
COMMISSIONER EVENCHICK: I'm curious – if you're able to generalize – where the licensing or re-licensing procedure has ended up in court, has there been any discernable pattern as to the basis for the objections that brought these cases into the courts?
WITNESS: Oh, yes. There used to be a requirement of ... community need in the statute. That used to provide a basis for the existing licensees to object on the ground that this was going to damage them. That was taken out of the statute. We still, however, have in the statute the notion of being able to be managed efficiently and effectively and indeed there's a provision that permits me to revoke a license for insufficient business. Based on those two provisions, objectors look at the economic feasibility aspect of the application, which is public, and they maintain that there isn't a sufficient need in the community to support more than what they're already providing ... You have a very sharp philosphical dispute between the Check Cashers Association and my Department to the effect that, since prices here are restricted, we don't have price competition and therefore the market area of a licensee should be protected from potentiallydestructive competition. That is their philosphy. When they come to a court case, they make specific objections to specific findings that we make.
Commissioner Evenchick asked what improprieties were being exposed by the DOB's periodic audits:
COMMISSIONER EVENCHICK: Finally, where exams have been conducted over the past year or two by your Consumer Credit Bureau, what kinds of problems have been found in the records of these licensees?
WITNESS: We have found many violations. We have found failure to post the [fees] sign-they are required to post the sign. Failure to post the license, failure to have employees fingerprinted as they are required to do, absence or neglect of business records which enable us to review their daily activity. We have seen evidence of postdated checks, I believe. We certainly have seen what we construe to be evidence of loans, [reflected by] large amounts of bounced checks in some cases.
Commissioner James R. Zazzali also asked about the effect of allowing checks of unlimited amounts to be cashed by licensees:
COMMISSIONER ZAZZALI: Commissioner, do I understand correctly that there is no cap or lid on the amount of the check that can be cashed?
WITNESS: In New Jersey there is not at the present time. There once was.
COMMISSIONER ZAZZALI: And you testified I think in your opening statement that in 1964 or thereabouts there was such a cap? In the amount of $250?
WITNESS: Yes.
COMMISSIONER ZAZZALI: Maybe I was reading too much into it, but when you stated that you seemed to grimace. I infer from that you think that there should be a cap or a restriction of some kind?
WITNESS: Well, you know, if a large volume of out-of-state checks is coming into New Jersey to check casher outlets and many of them appear to be emanating from New York which has such a cap and many of the checks appear to be over the New York cap limit, then it would appear to me that we ought to seriously consider having our law be as tight, if not tighter, than New York's. The average check in this State presented to a check casher is approximately $254 last year, so a check over $2,500 would be most unusual in terms of the average.
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New Jersey Fact:
"New Jersey is a small state on the eastern seaboard halfway between Honest John Lindsay and the Liberty Bell. It is best known for its turnpike, Atlantic City, Imamu Baraka, Newark Airport and the Morro Castle disaster. Most of its leaders are in jail for stealing money...."
Over thirty years ago, this was how a New York Times writer described New Jersey. The only things that have changed are that now Bloomberg has Lindsay's old job and Amiri Baraka figured out somewhere along the line that it's not too swift for an atheist to use a religious title.
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