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Superintendent Neiman addresses members of the check cashing industry during the Financial Services Centers of New York's (FSCNY) annual conference.

May 8, 2007

I want to thank the Financial Services Centers of New York for inviting me to speak at your annual conference. I have to admit that I was initially hesitant to give a keynote speech at such an early stage in my tenure as superintendent of the New York State Banking Department.

I started as superintendent on March 5 - just over two months ago - and was confirmed on April 18. I am still very much in the learning stage, including learning how the Department regulates its licensed financial services businesses. However, I came to the conclusion that the conference presents a perfect opportunity for us to start the process of getting to know each other. I am particularly eager to learn more about your businesses and how they meet the needs of the communities and consumers you serve.

I also welcome your views on the challenges that face your industry.

I've spent my entire thirty year career in the financial services sector and have seen the financial services industry from many sides. I've been a regulator, an attorney, an executive and a consultant. I started my career as Special Assistant to the Chief Counsel for Comptroller of the Currency. Most recently, I served as Chairman, President and Chief Executive Officer of TD Bank USA, a national bank. I was also director of Regulatory Advisory Services at PriceWaterhouse LLP in Washington, covering a wide range of brokerage, mutual fund, banking and other consumer financial products. This is not just to say that I've been around for a long time but that I believe I bring a broad perspective to the regulation and provision of financial services. I look forward to an ongoing, productive relationship where together we can discuss and address the various issues and challenges faced by your businesses.

I view today as just the first occasion among many to meet and hear from you. I also want to take this opportunity to share with you some of my thoughts and insights on the regulatory process at the Banking Department and how you can best navigate the regulatory waters.

State of the Industry

There's no doubt that check cashing is a thriving business in New York.

The Banking Department currently licenses 204 check cashing companies. Those companies operate over 900 locations and employ nearly 4,500 New York residents. 2005 was a record year for check cashers. (Unfortunately we do not yet have final numbers for 2006).

While the volume and face value of checks cashed somewhat declined in 2005, total fees collected increased. The numbers are impressive:

Although helped by the annual increase in consumer check cashing fees in accordance with the consumer price index, the increase in total fees and profitability can be explained by the expansion of commercial check cashing.

In 2005, retail check cashers cashed $293 million in commercial checks for fees of almost $5 million. Commercial check cashers alone cashed 358,000 checks with a face value of $1.5 billion, and a resulting profit of over $3 million. I also know that check cashing is only one of the services check cashers currently provide.

I've already had an opportunity to meet with your executive director, Hank Shyne, and deputy counsel, Ed D' Alessio. We discussed the variety of products and services the industry is either already providing or is at various of stages of preparing to provide, such as bill paying, stored value credit cards and money orders.

The Regulatory Process

Today's conference has not only given me a forum to get acquainted with the check cashing business. It has forced me to take a crash course in the regulatory process and issues facing both check cashers and my own Banking Department personnel.

I’ve been spending a lot of time with Regina Stone and her team. That there is a continuing interest in operating check cashing businesses is clear from the number of applications the Banking Department receives.

In 2006, our Applications Unit processed over 100 check cashing applications.

Frankly, what surprises to me is not the number of applications that are submitted but the number of applications that are returned or delayed because of application deficiencies. In 2006, only 37% were approved. Of the remaining applications, 41% of applications had to be returned, 17% were withdrawn and 5% were denied.

Many of the reasons applications are returned or approvals delayed are entirely avoidable. You might be asking what you can do to expedite the application process and smooth the road to approval of your application. There's one critical rule: Answer all the questions and don't put down false information. Here are some tips:

Character and Fitness

Our concern with our licensees' character and fitness does not end with the approval of an application. I don't think anyone here would dispute that character and fitness is the foundation on which the industry's ability to serve the public rests. For this reason, we are mandated to, and do, continue to evaluate character and fitness even after the initial application is approved. Unfortunately, some of our concerns in this area have been proved justified.

Just last week, two executives of one of our largest check cashers, C.L.B. Check Cashing, (including a former Banking Department examiner), pleaded guilty to one felony count of Rewarding Official Misconduct in the Second Degree. The defendants are subject to a lifetime ban from the industry and must pay a total monetary penalty of $4.3 million, which includes a $2.3 million fine by the Banking Department - the largest fine ever against a check casher. In addition, CLB principals and the corporation must exit the business.

Now, I know better than to impute the bad acts of a few to an entire industry. On the other hand, I think it demonstrates the Department's commitment to rooting out corruption and to ensuring that our licensees meet the highest standards of character and fitness.

Ongoing Supervision

Many of you have become familiar in the last few years with our FILM rating system. Having come from the banking industry, I was proud of the fact that I knew what a CAMEL rating was, but must admit that I assumed that a FILM rating was something between PG and R. Regina, however, has taught me well and I now know that FILM is an acronym for the four core principles that underlie the Department's oversight. These are:

Our FILM system is intended to facilitate communication between the Department and our licensees by creating a common language and clear set of expectations for the operation of licensees. What I have learned from Department regulators is that the most common deficiency in supervisory examinations is the lack of adequate documentation. Our examiners repeatedly report documentation is missing entirely, is inadequate or just plain inaccurate. Let me give you the Top 5 Deficiencies cited by our examiners:

  1. Books and records, particularly the daily record of checks cashed, are incomplete or inaccurate. Bank examiners tell me that they frequently find repeated instances where the names of payees and/or payors are omitted and even the use of fictitious names. In one case, our examiners found more than 1500 blanks in the records. These kinds of deficiencies go to the heart of the BSA/AML program and cannot be ignored.
  2. Currency Transaction Reports (CTRs) are also either inaccurate or incomplete. Bank examiners tell me they find CTRs that are not signed or dated, that do not have occupations filled in, that don’t match the company's books and records and that are not filed with the IRS.
  3. BSA/AML training is inadequate or incomplete. In some instances compliance officers have not received yearly training; in others not all staff members have received BSA/AML training. Often, there's simply not sufficient documentation of training. There are no certificates, no attendance lists, no tests, folders, programs or workbooks.
  4. There is a lack of sufficient independent testing for BSA/AML compliance by both internal reviewers and independent reviewers.
  5. And even when there is independent testing, there is often inadequate or on-existent documentation of these independent reviews.

It's not enough to simply certify that a company is in compliance, reviewers must document the process and their conclusions and maintain records that show the methodology used and how their audits and samples were conducted.

Bank Discontinuance

Before concluding let me say just a word on bank discontinuance - an issue I know concerns you greatly.

As most of you know, prior to 2005, New York required check cashers to maintain their deposits with New York banks. In 2005, Section 400.5 of the Superintendent's regulations was amended to provide for use of out-of-state banks as well, subject to certain specifications. This measure was intended to expand the availability of banks to service your needs. However, for whatever reason, although a few out-of-state banks have expressed interest in providing these services inquiries, to date only one check casher, a commercial check casher, has taken advantage of this amended regulation.

I'm also aware that the New York State legislature is currently considering legislation that would prevent any banking institution in the state from denying banking services to an MSB on the basis of the Bank Secrecy Act without the prior approval of the Superintendent of Banks. I know that the Banking Department is on record as opposing such legislation.

My initial reaction is that the Department's opposition is justified. Even apart from my concerns about any about the competitive inequality of state legislation that applies only to state banks and not national banks, I think that inserting the banking superintendent into the business decisions of its regulated entities would set a dangerous precedent. In my view, it is not the role of a regulator to mandate with whom a regulated entity should or should not do business.

I want to close by thanking you again for the opportunity to speak with you today. I look forward to meeting many of you and to learn more about your business. I also look forward to working with you and your association to address the challenges that face your businesses and that help ensure that all New Yorkers have access to a variety of quality financial products and services.

I very much appreciate your invitation today and wish you all a very productive meeting.


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