MSB Insider

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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MSB Accounts Face Increased AML Pressure

June 09, 2017

Regulators are cracking down on financial institutions with insufficient or non existent anti-money laundering (AML) programs. Between January and June of 2017, FinCEN brought two actions for AML violations against financial institutions, one resulting in a $184 million penalty.

According to the enforcement cases, faulty AML programs lead to a breakdown in reporting, including a lack of Suspicious Activity Reports (SARs) and Currency Transaction Reports (CTRs). Both of these reports are integral to a comprehensive and efficient compliance protocol.

Anti-Money Laundering Regulation

AML regulation is enforced by the Financial Crimes Enforcement Network (FinCEN) in accordance with the Bank Secrecy Act (BSA) of 1970. The BSA outlines the systems, standards, and controls for financial institutions. Specifically, the BSA requires financial institutions to work alongside government agencies to prevent, detect, and prosecute financial crime.

Under the BSA, financial institutions are required to design, implement, and report on their AML efforts. The BSA was designed to encourage coordination and clear communication between financial institutions and enforcement agencies. To achieve this goal, financial institutions are required to follow protocol for record keeping and reporting.

This protocol includes:

  1. Keeping records of cash purchases of negotiable instruments
  2. Filing reports of cash purchases of these negotiable instruments (greater than $10,000 a day)
  3. Reporting suspicious activity potentially relating to money laundering, tax evasion, terrorist financing, identity theft, or other financial crimes

To accomplish these requirements, financial institutions keep detailed reports. The types of reports banks are required to file include:

  1. Currency Transaction Report (CTR): a report for cash transactions over $10,000 in one business day, whether as one transaction or a combination of cash transactions. The CTR is filed electronically with FinCEN.
  2. Monetary Instrument Log (MIL): a report for cash purchases of monetary instruments including money orders, cashier’s checks, or traveler’s checks between $3,000 and $10,000 in value. The MIL is kept on record for 5 years at the financial institution, ready to be produced if requested by examiner or compliance auditor.
  3. Suspicious Activity Report (SAR): a report of a cash transaction where the customer appears to be attempting to elude BSA requirements or commit a financial crime. In this case, the customer is not notified of the SARs and the report is filed with FinCEN.

These requirements are outlined in any comprehensive compliance program. For financial institutions, a compliance department oversees the processes to ensure nothing is overlooked.

Current AML Trends

At its core, AML is designed to promote transparency and increase communication. Both are vital for fighting financial crime. In recent years, regulators are cracking down on how financial institutions meet compliance requirements. US regulators are keeping a sharp eye on internal systems and processes, timely detection and reporting of potential suspicious activity, and the ways conduct can affect individual liability for employees.

The following areas of AML regulation are being scrutinized:

  1. Gaps in establishing and following adequate policies and procedures
  2. Failure to adapt AML programs to a specific business model
  3. Inadequate due diligence for opening new accounts and maintaining current accounts
  4. Subpar risk assessment of new customers and accounts
  5. Insufficient devotion of resources to an AML program
  6. Errors in identifying potential violations or failure to report them in a timely manner

Even though the BSA is over 30 years old, FinCEN is continuously monitoring new threats and updating their requirements to match the current landscape. Agencies are currently debating how to regulate digital currencies like BitCoin and how to work alongside FinTech startups who are disrupting the traditional banking model.

Tightening regulation is having several unintended consequences. For one, American non profits working abroad are finding it harder than ever before to access cash. When their headquarters in the US transfer funds for projects, this money is often held up or stopped entirely by regulation. These NGOs are facing delays and are even being forced to abandon projects entirely due to banking difficulties.

The money service business banking industry is also dealing with the negative fallout of increased regulation.

MSB Banking & AML

As they work to shore up their compliance programs, many financial institutions are shutting out entire industries. By excluding “risky businesses,” banks can eliminate perceived risk, rather than manage it. Unfortunately, the MSB industry was labeled “risky” by FinCEN’s 2013 list of “risky businesses.” This 2013 publication has since been dubbed Operation Choke Point and the list has been rescinded. Many of the named industries, however, are still dealing with the fall out.

When banks shut down MSB bank accounts, money service businesses are left with an ever dwindling pool of financial institutions. Since a bank account is crucial for providing alternative financial services, unbanked MSBs face business closure. One way to combat this trend of derisking is to maintain and document a robust compliance program. Many MSB bank accounts are still terminated without explanation, despite adequate compliance. What can MSBs do to guard against derisking?

MSB Compliance & Banking Solution

National Check and Currency was formed to solve this very problem. To guard against derisking, NCC uses a network of MSB friendly banking partners to provide reliable and redundant banking services to their MSB clients. As a result, clients can enjoy peace of mind. If one bank decides to shed risk, there are multiple banks waiting to step in and provide banking continuity.

NCC also provides expert MSB compliance services to help clients detect and prevent financial fraud. Every MSB receives a state of the art POS system for vetting customers and collecting data points on every transaction. This information is then immediately shared with the financial institution and any other check cashing locations. At any point in time, the business owner can see a birds eye view of the entire business. From there, you can drill down to the smallest details of each transaction.

Your NCC team works around the clock to ensure you are implementing new requirements well before they become formal regulations. You stay a step ahead of FinCEN and in compliance with all applicable rules and regulations. This comprehensive approach helps you maintain a strong banking relationship so that you can enjoy supported MSB services. These banking services include extended deposit times, rapid deposit turnaround, armored cash logistics, and money wire between accounts.

Discuss your options with an MSB expert and open your real MSB bank account today.


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Payroll Cashing Bridges the Banking Gap

June 01, 2017

Even fully banked individuals turn to payroll cashing to meet their financial needs. This is contrary to the popular belief that only the unbanked rely on check cashing services. In reality, a wide variety of people enlist alternative financial services to move their money around, pay bills, submit their rent check on time, and handle household emergencies.

The Banking Gap

In 2016, 9 million households in the US did not have a checking or savings account (FDIC Annual Survey). A total of 24 million households were underbanked in this same year, showing that full-scale traditional banking is out of reach for a significant portion of the population. These households are unable to use direct deposit to access paychecks or rely on credit cards in emergencies. As a result, they hover one misstep away from a financial melt down at all times. In this situation, it is impossible to pay rent, manage bills, and run a home without check cashing services.

Two sectors of the population in particular are driving the growing number of unbanked US households: low income households and millennials. Both groups have one thing in common: they are choosing convenient access and upfront fees over bank branches and hidden charges. For millennials, mobile money apps offer an ease of use they just can’t find elsewhere.

For lower income households, the act of being unbanked is not a choice. Lower income households who do use traditional checking accounts end up taking “loans” against the account in the form of overdraft charges. Bank fees quickly pile up and can be insurmountable for someone with less disposable income. These households spend a far greater percentage of their income on necessities like housing and food. As a result, they can’t afford lags in deposit availability and inconveniently located bank branches.

Alternative financial services like payroll check cashing, prepaid debit cards, quick bill pay, and money transfer bridge the gaps between income, convenience, and the traditional banking industry. Educator and researcher, Lisa Servon, recently published a book, The Unbanking of America: How the New Middle Class Survives. In it, she explains why our beliefs about check cashers are flat wrong. During the time she spent undercover as a check cashing teller, Servon was surprised to serve regular customers, many of whom also had a real checking account at a big bank.

Why would someone with a bank account use a check cashing business? In many cases, the customers Servon served needed immediate access to their money in order to make rent, repair a car, or cover a similarly crucial cost. Her discovery led her to examine the check cashing industry in a new light and work to undo the demonization of alternative financial services.

Payroll Cashing & The Check Cashing Industry

The check cashing industry serves everyone who uses non traditional financial services, whether it’s their choice or a necessity. Payroll cashing is offered by stand alone check cashing outlets (traditional “We Cash Checks” locations) and retail check cashers (convenience stores and other businesses who offer check cashing in addition to their primary products and services).

Low income and minority neighborhoods are more likely to have a check casher than a bank within walking distance or easily accessible by public transportation. Thanks to redlighting, many banks opt to steer clear of neighborhoods that aren’t wealthy and caucasian. The result? Low income, minority neighborhoods are essentially excluded from the traditional banking system. In many cases, a bank branch is 2 bus transfers away and if it is within reach, it is closed by the time someone working 2 shifts can get there.

Retail check cashers deliver another layer of convenience by bundling financial services with necessary errands. Convenience store check cashing is the most well known retail check cashing option, but many other businesses offer payroll cashing: liquor stores, beauty shops, gas stations, restaurants, grocery stores, and bodegas. Like a mobile money app, retail check cashers enable their customers to multitask – and take care of their banking needs on the go.

The Future of Alternative Financial Services

The future is promising for alternative financial services. For both the banked and the unbanked, check cashing and other convenient options offer freedom that they can’t find (or achieve) through traditional banking. While FinTech is touted as the future of financial inclusion, many of these options are geared towards higher income millennials and do not address the issues faced by lower income families.

The ability to cash your payroll check and then turn around and use those funds to pay bills, load a prepaid debit card, and send money to family is essential. When it comes to performing this task, the expense of account maintenance fees and overdraft charges can exceed the 1% check fee assessed by a check casher.

As Lisa Servon notes, the choice to use a check casher is often a smart decision made by an individual who fully understands the options in front of them. In this case, the individual is making a financial decision that makes the most sense for their situation – and leverages their assets in a way that enables them to carry out daily tasks.

As consumers turn to payroll cashing, the financial services industry is slowly evolving. Some big banks now offer check cashing for non account holders and immediate access to funds for existing account holders, for a price. This helps current account holders circumvent long deposit hold times when they need money quickly.

Check Cashing Business Bank Accounts

Reliable business bank accounts are the backbone of the  check cashing industry. A check casher needs a bank account in order to accept checks, clear them, and return cash to the customer. In yet another blow to the unbanked, check cashing business bank accounts are growing scarcer by the day.

Derisking is the main contributor to lack of check cashing banks. The phenomenon of derisking occurs when financial institutions close check cashing bank accounts in an effort to shed risk. While this risk can be successfully managed through strong compliance, many banks opt to avoid it all together. When banks make this choice, check cashers are left without a bank account.

This account closure forces check cashers into a mad frenzy to secure another bank account quickly to avoid operational gaps. In many cases, the check casher is forced to close either temporarily or permanently when they become debanked. This hardship is passed along to the check cashing customer who is left without a method to cash their payroll check.

NCC helps payroll check cashers bridge the banking gap by supporting them with solid business bank accounts. To do this, NCC uses a network of banking partners to provide redundant money service business banking for check cashers. What does redundant mean for your banking? Essentially, NCC helps you eliminate the threat of derisking through a collection of “back-up” banks. If one bank drops out, there is another bank to take your account with zero lapse in service.

This peace of mind is exclusive to NCC. In addition to real banking, NCC’s check cashing experts provide guidance on compliance, fraud prevention, safety, and efficiency so you can run the best check cashing business possible.


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The MSB Insider

Check Cashing Laws and Regulation

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 ...(read full article)

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