Check Cashing: A REAL Solutions® Implementation Guide is a 2009 publication of

the National Credit Union Foundation’s REAL Solutions® program.

About the National Credit Union Foundation (NCUF)

The National Credit Union Foundation (NCUF) raises charitable funds, runs innovative programs, and
makes impactful grants for America’s credit union movement. NCUF’s mission is to “promote and
improve consumers’ financial independence through credit unions.” Among the NCUF programs
achieving this mission:
REAL Solutions® — Helping millions of consumers gain access to affordable financial services, achieve
financial literacy, grow savings, build assets, and buy homes.
Development Education — Leading training on cooperative principles in the modern consumer
marketplace to overcome what credit unions identify as the greatest threat to their future: “the eroding of
credit union philosophy.”
Social Impact Management — Meeting a “triple bottom line” that benefits credit unions, members, and
communities.

About REAL Solutions®

REAL Solutions® is the signature program of the National Credit Union Foundation. REAL — “Relevant,
Effective, Asset-building, Loyalty-producing”— Solutions® works to help credit unions offer a wide range
of products and services that have proven successful in serving working families with low wealth and
modest means. Using product/business models created and tested by credit unions, REAL Solutions®
disseminates information to credit unions through special meetings, an online impact center at
www.realsolutions.coop, and state and national conferences. In the first two years as NCUF’s signature
program, REAL Solutions® was adopted in 30 states and is saving members tens of millions of dollars. It
has now become a documented business strategy for credit unions to grow their memberships by
serving the underserved. Real people with real needs are finding REAL Solutions® at credit unions.

Disclaimer
With respect to content of this publication, neither the National Credit Union Foundation, Inc. (NCUF) nor
any of its affiliates or its or their respective employees make any express or implied warranty or assume
any legal liability or responsibility for accuracy, completeness, or usefulness of any information,
commercial product, service, process, provider, vendor, trade name/mark that is disclosed. References
to any specific commercial product, service, process, provider, vendor, or trade name/mark in this
publication also does not necessarily constitute or imply that such a product or provider is endorsed,
recommended, or warranted by NCUF. The views and opinions of the authors expressed herein do not
necessarily state or reflect those of NCUF and such reference shall not be used for advertising or
product endorsement purposes.

This publication is designed to provide accurate and authoritative information in regard to the subject
matter covered. It is provided with the understanding that the publisher, NCUF, is not engaged in
rendering legal, accounting, or other professional services. If legal advice or other expert assistance is
required, the services of a competent professional should be sought.

For more information, contact: REAL Solutions®

c/o National Credit Union Foundation
601 Pennsylvania Avenue NW, Suite 600
Washington, DC 20004-2601
Phone: 800.356.9655, x6770
Email: lkitsch@.ncuf.coop
Fax: 202.638.3912
Web: www.realsolutions.coop
About Credit Union Association of New Mexico
The Credit Union Association of New Mexico (CUANM) is the trade organization that helps credit unions
throughout New Mexico address the needs of their members. CUANM creates partnerships with national
and local companies so that credit unions of all sizes can offer products and services their members use
every day at little or no cost. CUANM also provides classes, seminars, experienced consultants and
other resources to help credit unions remain compliant with the ever growing number of laws and
regulations. CUANM also works to promote financial literacy at all ages, from early childhood to adult,
through programs offered through local credit unions and educational institutions throughout the state.
Finally, CUANM provides advocacy services, working with state and national representatives, including
the State Legislature and our representatives and senators in Washington, D.C., to protect the rights of
credit union members.

In April 2007, CUANM adopted REAL Solutions® to focus on serving the needs of youth, new Americans
and households of low-wealth with educational programs as well as transaction, savings and credit
products and services. As of May 2009, 25 New Mexico credit unions, or 50% of CUANM affiliated credit
unions, participate in the REAL Solutions® program.

About Texas Credit Union League

The Texas Credit Union League (League) is the official state trade association serving credit unions in
Texas. The League represents, on a state and federal level, over 500 credit unions, which are owned by
more than 7.2 million members (about one-third of the state’s population). Organized in 1934, the Texas
Credit Union League protects credit unions and promotes their growth, strength and unity. It
accomplishes the mission through advocacy services, regulatory and compliance advice, training and
event activities, marketing and public relations actions, and by delivering innovative, high value and
profitable business solutions to the members.
As a way to expand Texas credit unions’ work serving low-wealth and modest means households, the
League adopted REAL Solutions® in April 2008, supported by a generous grant from the Texas Credit
Union Foundation (TCUF). Texas now boasts 45 REAL Solutions® credit unions helping consumers gain
the solid financial footing they need to become and remain self-supporting, contributing members to the
state's economy.

Acknowledgements
In early May 2009, several New Mexico and Texas credit unions gathered in Albuquerque, New Mexico
for a two-day REAL Solutions Workshop. One full afternoon was devoted to developing two
implementation guides or toolkits: Check Cashing for Credit Unions and 2nd Chance Checking for Credit
Unions. This particular toolkit, “Check Cashing for Credit Unions” is the byproduct of participant
contributions plus the generous sharing of models and information from credit unions and/or CUSOs
offering similar programs.

The author would like to thank these participants and their contributions at the workshop:

Karen Rapp Artesia CU

Ronnie Johnston Artesia CU
Natalie Marx BAB CU
Karlene Colgan Chino FCU
Cecilia Clark Chino FCU
Bill Stites Chino FCU
Larry Knoll Chino FCU
Lori Brunsen Clovis Community College GEAR UP
Rhonda Jacquez Cuba CU
Brenda Dugas Eddy FCU
Andy Baum Everyone’s CU
Joye Clubine Everyone’s CU
 Phyllis Crawford Four Corners FCU
Winona Nava Guadalupe CU
Kym Moore High Plains FCU
Virginia Teague Lea Community FCU
Sandra Powell LOCO CU
KC Christensen NM Educators FCU
Linda Tangen NM Energy FCU
Larry Lujan Northern NM School EFCU
Esther E. Martinez St. Gertrude’s CU
Isabel Lopez St. Gertrude’s CU
Jan Long Texas Coastal Community FCU
Tammy Doiron Texas Coastal Community FCU
Mike Delker Texas Credit Union League
Natasha Melugin Texas Credit Union League
Michelle Gutierrez U-1st Community FCU
Natalia Tretiak Zia CU
Amanda Duran Zia CU
Ellen Rodda Zia CU
Baby Matousek Zia CU

Additionally, the author would like to thank the following credit unions and CUSOs that provided sample
materials and information for this toolkit:

Charter Oak Federal Credit Union in Groton, CT

Credit Union Center (CUSO) in Wichita, KS
Dane County Credit Union in Madison, WI
Denver Community Credit Union in Denver, CO
Guadalupe Credit Union in Santa Fe, NM

About the Author

Nancy Pierce, Ph.D., is the President of Tipton Research Group in Kansas City, MO which provides
research and consulting services to the credit union industry. She is a 25-year veteran of the credit
union industry and served as president of Mazuma Credit Union in Kansas City, MO and Chairwoman of
both the Missouri Credit Union Association and the Credit Union National Association (CUNA). Following
her retirement from Mazuma Credit Union, Nancy received her Ph.D. in Consumer and Family
Economics from the University of Missouri – Columbia in 2004. She is currently serving as a Field
Coach for the National Credit Union Foundation’s REAL Solutions program and has provided services in
the following states: California, Colorado, Kansas, Missouri, Montana, New Mexico, Texas and
Wyoming.
 Table of Contents

Section 1: Introduction ………………………………………. 5

Section 2: Implementation Considerations ……………….. 7
Section 3: Product Design and Profiles …………………… 12
Model 1: Denver Community CU ……………… 13
Model 2: Charter Oak FCU …………………….. 14
Model 3: Guadalupe CU ……………………….. 16
Section 4: Product Pricing ………………………………….. 17
Section 5: Regulations/Compliance ……………………….. 18
Section 6: Business Plans, Policies & Procedures ………. 22
Section 7: Marketing the Product ………………………….. 37
Section 8: Education and Training ………………………… 40
Section 9: Implementation …………………………………. 45
Section 10: Measuring Success ……………………………. 46
Section 11: References ……………………………………… 48
 1. Introduction
It is estimated that consumers spend $8 billion annually to cash checks at check
cashers.1 The number of check cashing outlets grew steadily during the 1990s. In
2000, there were 6,000 outlets and by 2005, that number had grown to 13,000.2 Those
outlets reportedly cash 180 million checks for $55 billion. In 2006, the average cost to
cash a payroll check was 4.11% of the face value. That means a worker would pay an
average of $19.66 every week to cash a $478.41 payroll check at a check casher.3 That
amounts to an annual cost of $1,022.32 to cash net earnings of $24,877.

A study by the Brookings Institute found 23% of lower income households (incomes
under $30,000) did not have a checking account and another 65% did not have a
savings account.4 The chart below illustrates the study’s findings of the proportion of
households without a checking or savings accounts by income.

1
Center for Economic Progress presentation, “Doing Good is Good for Business.”
2
Consumer Federation of America, “Cashed Out: Consumers Pay Steep Premium to ‘Bank’ at
Check Cashing Outlets,” by Jean Ann Fox and Patrick Woodall, 2006.
3
Ibid.
4
Brookings Institute, “From Poverty, Opportunity,” 2006.

Check Cashing: A REAL Solutions® Implementation Guide 5

 Credit unions can be part of the solution to high cost check cashers by offering
reasonable fee-based check cashing services to members and potential members that
represent a good value for the consumer, but a sustainable service for the credit union.
Not all credit unions charge or will want to charge a check cashing fee to their members
and this toolkit is not intended to disparage that decision. However, credit unions that
actively seek to grow members through outreach efforts to the unbanked or under-
banked may find fee-based services are a means to cover costly transactions.

This check cashing toolkit is intended to help credit unions develop a check cashing
program that is appropriate for the credit union and its potential market. Successful
models are featured. In addition, the toolkit includes the various implementation steps
and issues that must be considered before launching a new service.

Toolkit Objectives:

1. Provide examples of fee-based Check Cashing Models for non-members

2. Provide examples of fee-based Check Cashing Models for members with a
limited credit union relationship
3. Learn more about who uses check cashers
4. Build commitment/support for a fee-based program
5. Identify compliance issues
6. Provide sample business plan, policies and procedures
7. Provide sample forms needed
8. Provide sample marketing plan and materials
9. Provide sample implementation steps
10. Identify measurement criteria

Check Cashing: A REAL Solutions® Implementation Guide 6

 2. Implementation Considerations
With the exception of very small credit unions, most credit unions offer check cashing
services to their members. Many will provide this service fee-free to all members, while
others will charge a small fee if the member has a limited relationship with the credit
union, such as only a savings relationship with a balance less than $300 or some other
criteria.

Even if check cashing services are not new to the credit union, implementing a fee or
offering such services to non-members can create, at a minimum, a sense of discomfort
to outright hostility within the credit union domain. Therefore, it is critical to obtain
understanding and commitment from the board, management and staff. The credit
union must have a common vision of the purpose of the service and the motive for
offering it. The following questions and responses can help build a business case for a
fee-based check cashing service for members and/or non-members.

Why Implement a Fee?

Check cashing services are costly. It requires delivery of cash, retaining non-earning
cash on hand, and front-line staff to cash the checks that are knowledgeable of
compliance issues and are alert to forgery or fraud tactics. There is nothing wrong with
charging a fee to cover the service costs, particularly if the member chooses to use the
credit union only as a check cashing institution. A fee may be preferable to closing what
the credit union may see as unprofitable accounts, an action that serves neither the
credit union nor the member.

If the credit union is aggressively trying to grow its membership through outreach efforts
to the unbanked or those using costly check cashers, its transaction costs are likely to
increase and a fee may be the only way to cover the service. For most consumers using
check cashers, the credit union fees should be less onerous, putting more money back
into the consumer’s wallet.

Why Offer Check Cashing Services to Non-Members?

Many users of check cashers are un-banked or under-banked, meaning they either have
no or a limited relationship with a financial institution, and rely on the alternative financial
services sector, such as check cashers to conduct their transaction business. These
people seek a place to cash checks and buy money orders to pay their bills. They are
potential candidates for new members, yet are willing to pay for the services they
receive. Thus they provide not only a source of new business, but a source of income to
the credit union, as well.

Who is the Target Market?

Possibly one or more of the following:
1. Credit union members with a limited relationship and use the credit union only to
cash payroll/government checks
2. Members/Non-members who are using more expensive check cashing outlets
3. SEGs with low-income wage earners within a 3-5 mile radius of a branch location
& particularly those SEGs where direct deposit may not be available

Check Cashing: A REAL Solutions® Implementation Guide 7

 4. Immigrant market within a 3-5 mile radius of a branch location
5. Traveling contract workers for SEGs or employer groups
6. Displaced disaster victims that need access to local financial services
7. Health care professionals & teachers working here who came on a work VISA
from other countries
8. Foreign exchange students

How to Assess Potential Size of Market?

The following are some ways to determine market potential:
1. Number of Check Cashers within 3-5 miles of a credit union branch
2. Percent of current members that only cash checks with the credit union
3. Potential SEGs or other nearby businesses with low-income employees and/or
immigrants or New Americans
4. Non-members who may request check cashing service

Can All Credit Unions Cash Checks for Non-Members?

Federally chartered credit unions can cash checks for non-members that are within their
fields of membership. The rules can become more complicated for state chartered credit
unions. See Section 5, Regulations/Compliance for more details. Credit unions can
also form Credit Union Service Organizations (CUSOs) to provide this service.

What Technology or Computer Capability is Necessary?

If cashing checks for members only, no further technology is necessary. However, some
data processing systems have features that enable credit unions to view member
relationships and determine when the member is a good candidate for cross-selling new
products.

If cashing checks for non-members, some method of record-keeping is necessary.

Guadalupe Credit Union, one of the featured credit unions in Section 3 uses a platform
which records and retains the application information and completes compliance
requirements. At a minimum, a credit union would need to set up a simple spreadsheet
that includes the name of the check casher, employer information, and ID information.
Some data processing systems allow for non-member information. Samples of a
spreadsheet and application and verification process are included in Section 6, Business
Plans, Policies and Procedures.

Who Uses Check Cashers?

Users of check cashers can vary significantly. It is important to remember most are
gainfully employed or receiving a recurring government check. The following list
includes those more apt to use such services:
1. The unbanked or under-banked who live primarily in a cash economy (estimated
to be about 40 million households);
2. Immigrants or New Americans who are unfamiliar/untrusting of financial
institutions and their more formal environments;
3. Those who choose to conduct business as their parents did;
4. People willing to pay a premium for a needed/convenient service;
5. Those who feel the check cashing fee is cheaper than overdraft fees for a
checking account;
6. People who have had a good experience with a check casher (i.e., those who
place more weight on experience/relationship/respect than price);
7. Those who are comfortable with an informal economy – a trusted network of
friends, family and community members, including check cashers;

Check Cashing: A REAL Solutions® Implementation Guide 8

 8. Those who don’t understand or fear identification requirements at traditional
financial institutions.

One study5 of check cashing customers found:

 66% were females
 56% were married or in a committed relationship
 41% had children under age 18
 76% were employed
 29% owned their home
 60% had a checking account with a financial institution; 30% would like to have
one
 38% of banked households pay their rent in cash or by money order because
landlords won’t accept a check
 Average income was $31,000
 Average age was 37
 Average check amount was $452; average payroll check was $654
 Average # checks cashed per year was 20; average # payroll checks cashed
was 35

More Reasons for Offering a Fee-Based Check Cashing Service

1. Check cashers charge from 2% to 6% of the face value of a check, with an
average of 4% in 2006. Given an average payroll check amount is $654 and the
average number of payroll checks cashed per individual is 35 a year, a check
cashing customer could pay from $458 to $1,373 a year in check cashing fees. If
a credit union charged only 1%, the annual income to the credit union from this
member would be $229, and the member would save from $229 to $1,144.
2. Cashing a paycheck or government check means carrying lots of cash on hand.
This presents a security risk for the individual and encourages people to spend
all their money instead of making some effort to save a portion of it for a rainy
day. Credit unions can offer individuals deposit and savings options to better
manage their money.
3. A credit union doesn’t need to take a short-term-gain perspective with its check
cashing program. It will want a sustainable product, but sustainability can be
achieved in a number of ways. A check cashing service may be a means to
attract the underserved population in the community, thus growing membership.
If these individuals can be moved up to more traditional products, then the check
cashing service can be viewed as a new business development tactic.

More Frequently Asked Questions:

Resistance from board and staff members to a new fee is common, particularly from
front-line staff that must collect the fee or board members who are confronted by their
peers who may be affected by the fee. Similarly, a new service that is offered to non-
members can create visions of chaos in the lobby of street gangs forcing their way in to
cash fraudulent checks. Anticipating and preparing for their resistance and questions
can help alleviate much of the fear or concerns that are typical.

5
Center for Financial Services Innovation Study 2007: “The Power of Experience in
Understanding the Underbanked Market.”

Check Cashing: A REAL Solutions® Implementation Guide 9

  Won’t we lose a lot of our long-standing good members who will object to paying a
check-cashing fee?
We may lose a few, but many will recognize that fees are even higher at traditional
check cashers or at banks, where the customer may have to maintain an even
greater relationship to avoid the fee. Our marketing and training departments will
help with materials to notify members of the change in operations and to provide staff
with appropriate responses to members’ questions and arguments. It will also be an
opportunity to help staff cross-sell members into other services to avoid the fee.
After the initial period of discomfort, the result should be members are using more of
our services or are paying the costs to use us as their check casher.

 Won’t there be high losses from uncollected checks from non-members?

Losses from uncollected checks are low according to the Financial Service Centers
of America, the check cashers’ trade association. It reports that less than 1% of
checks presented to check cashers are returned and between 80% and 90% of
these checks are ultimately collected.

To minimize loss risk, we will only accept payroll checks from known employers and
recurring government checks. We will verify employment for each non-member and
maintain an “approval list.” Remember, these non-members are potential members
and as they become accustomed to doing business with us, are candidates for
becoming loyal, productive credit union members.

 Won’t this increase lobby traffic and put an extra burden on front-line staff?
We already have to plan for busy paydays. As our non-member business grows, we
may need more cash and tellers on hand. However, today we fund these resources
at no direct cost to members. As our members with limited relationships begin to pay
for check cashing services and as revenue from non-members increases we can pay
for these extra expenses.

 Will the credit union need to be open longer hours and on weekends?
We already offer extended hours on Fridays and are open Saturday mornings. If our
check cashing business grows to the extent that longer hours are warranted, we
would anticipate sufficient revenue from the business to pay for the added hours.

 What other benefits are there for offering a fee-based check cashing service?
o It is a way to grow membership. Check cashing services will attract those
paying a much higher fee at traditional check cashers. In turn, we hope to
convert them into loyal, productive members that use our other products,
such as checking and direct deposit services.
o We will be performing outreach efforts to unserved/under-served markets
within our community. We will be able to demonstrate the value of having a
financial relationship with a credit union. These new members will have
access to our financial counselors and financial budgeting tools for improving
their money management skills. We can help them climb the ladder to
wealth-building and financial security.

Check Cashing: A REAL Solutions® Implementation Guide 10

 Include Board and Staff in Process
Input, including opposing views, should be encouraged from all parties that may either
have to carry out the new service or respond to member arguments. It is unlikely that
everyone will be “sold” on the new service or fee at the start, but inclusion of all
arguments enables management to respond to concerns, make adjustments to
unpredicted operational inefficiencies, and offer some concessions that won’t
compromise the intended outcome.

Check Cashing: A REAL Solutions® Implementation Guide 11

 3. Product Design and Profiles
As noted earlier, a check cashing service will not be new to most credit unions. What
will be new is the implementation of a fee-based service or extending the service to non-
members or a new target market. Section 4 addresses pricing options and
considerations. This section covers some of the design details that should be
considered when extending service to non-members and/or a new target market that is
unknown to the credit union. It also includes profiles of successful check cashing
models.

 Must the check casher be made a member before cashing a check or just be in the
credit union’s field of membership?
 What current IDs will be accepted?
 If a non-member, will there be an application form the payee must complete?
 Will payee’s address need to be verified initially? How will this be done? (Phone
book listings, copies of utility bills, etc. are methods of verifying a person’s address.)
 What other verifications will be completed initially? (It is recommended non-member
payees go through the same “know your member” verification process.)
 Will proof of employment be acceptable, such as a pay stub, or will the employer be
called to verify authenticity of check?
 If a non-member, will there be some form of “approved list” established that can be
checked when cashing future checks? How will this list be updated or maintained?
 If a non-member, will payee be given some form of check casher card that can be
used as identification in the future?
 What types of checks will be cashed? (Payroll checks from known employers and
government-issued checks are recommended. Other types of checks could be
approved by management.)
 Will there be a maximum check amount before approval must be granted by
management?
 What ancillary products could/should be offered with a check cashing operation?
Some services typically offered by check cashers include utility bill payment, phone
cards, bus passes, stamps, money orders, photocopying and faxing, and/or gift
cards. These services won’t offer significant revenue potential and can slow down
the teller line. However, users of check cashers may need or demand these services
in order to change locations. The use of focus groups or feedback from community
partners may provide some input as to which services consumers want most.

Check Cashing: A REAL Solutions® Implementation Guide 12

 Credit Union Model 1
Non-Member/Member Check Cashing Service

Denver Community Credit Union

1075 Acoma St
Denver, CO 80204

Assets: $209 Million

Members: 28,000
CU Website: www.denvercommunity.coop
Contact: Krista Ferndelli, Chief Marketing Officer
kferndelli@DenverCommunity.coop
(303) 626-0705

Start Date: March 2005

Program Features:
 Fee of 1% or $3 for non-members, whichever is higher
 Free for members with $100 in savings or multiple products; otherwise same as for
non-member
 Membership share requirement is $25; non-members can open a Build A Share
Account by depositing at least $5 of any cashed check into the account and have 6
months to build up to $25 requirement
 Government and payroll checks only can be cashed for non-members.
 Non-members must provide two forms of I.D. Verification of the I.D. is run through
ChexSystems for all non-members.
 A Check Cashing Request Form must be completed by all non-members with the
following information:
o Contact information
o Social Security Number
o Place of employment
o Names and telephone numbers for two references
This form includes a Check Cashing Agreement that must be signed and makes
the non-member responsible for any loss incurred by the credit union from a
delay, endorsement error or processing error including insufficient funds.

Purpose of Program:
Initially, check cashing service was offered to non-members to help transition the
unbanked to a relationship with a trustworthy financial institution. Most people choose to
join the credit union immediately.

Check Cashing: A REAL Solutions® Implementation Guide 13

 Credit Union Model 2
Member Check Cashing Service

Charter Oak Federal Credit Union

32 Chicago Ave
Groton, CT 06340

Assets: $600 Million

Members: 82,000
CU Website: www.charteroak.org
Contact: Rick Stout, Vice President
(860) 446-3292

Start Date: 2002

Program Features:
 Anyone wishing to cash checks is enrolled as a member
 Membership share is $.01; $5 one-time fee
 Fee of 1% of face amount with $1 minimum (Connecticut law allows a charge of
2% of face value)
 Fee is waived if member has aggregate balance of $1,000 or a share account
with a balance of $500
 Only accept payroll checks from local, known employers and reoccurring
government checks, including state and federal tax refund checks
 At sign up, individual completes membership forms and must comply with all
BSA and MIP policies

Results from 2002 through 2007:

 Over $66 million in cashed checks
 $661,000 in fee income plus $150,000 on money orders and wire transfer fees
(about 3 bps to ROA)
 Only $2,000 in losses – none since 2004
 1,500 to 2,500 members have used the check cashing product

Purpose of Program:
We saw this program as an opportunity to increase both fee income and help members
save money via lower fees. We also wanted to put our money where our mouth was
with respect to providing outreach efforts.

Benefits of Program:
 Fee income of $661,000 to credit union and another $661,000 savings to
members with a 1% fee instead of 2% allowed by state and charged by other
check cashers.

Check Cashing: A REAL Solutions® Implementation Guide 14

  Membership growth and have successfully converted several hundred check
cashers into checking account members.

Additional benefits are included in “Leap into a Check Cashing Program” in Section 8,
Education and Training.

Check Cashing: A REAL Solutions® Implementation Guide 15

 Credit Union Model 3
Non-Member Check Cashing Service

Guadalupe Credit Union

3601 Mimbres Lane
Santa Fe, NM 87507

Assets: $82 Million

Members: 9,000
CU Website: www.guadalupecu.org
Contact: Winona Nava, CEO
(505) 216-0450

Start Date: 2008

Program Features:
 Fee of 1% or $3, whichever is higher
 CU uses Trandotcom platform, which records and retains the application
information and completes compliance requirements
 Approved payroll checks from known businesses, government checks, and other
checks as approved by management are cashed

Purpose of Program:
Originally, check cashing services for non-members was planned for the credit union’s
new location, situated in a Hispanic and low wealth community. Check cashing services
are now offered in all facilities.

Results to Date:
As of February 2008, the credit union is cashing about 30 non-member checks per
month.

Sample Procedures are included in the Procedures Section.

Check Cashing: A REAL Solutions® Implementation Guide 16

 4. Product Pricing
Pricing options can vary considerably from a set amount to a percent of the face value.
Wal-Mart, for example, will cash payroll and government checks for $3, regardless of
amount. Wal-Mart offers this service for a low fee in anticipation that some of that cash
will be spent at its checkout counters. The models featured in the previous section
generally charge a percent of the face value with a minimum fee amount.

The following are some pricing details credit unions should consider when implementing
a fee-based service for current members, new members, or non-members:

 Will there be a minimum check cashing fee, regardless of face amount?

 Will the fee be a percent of the face value?

 Will there be a maximum check cashing fee, regardless of face amount?

 When will the fee be waived? That is, what savings/loan balances or other
services must the member have with the credit union in order for the fee to be
waived or lowered?

 Does the credit union charge a membership fee or will there be an initial sign-up
fee for non-members to cover the costs of set-up?

Check Cashing: A REAL Solutions® Implementation Guide 17

 5. Regulations/Compliance
Credit unions should be familiar with any applicable regulations or compliance issues
that will affect check cashing services, particularly if offered to non-members.

Federally Chartered Credit Unions

The Federal Credit Union Act enables federally chartered credit unions “to cash checks
and money orders and receive international domestic electronic fund transfers for
persons in the field of membership for a fee.” The act was changed in recent years so
that FCUs could reach the “unbanked” by allowing these services to anyone eligible to
become a member.

State Chartered Credit Unions

State chartered credit unions with the authority to offer services to non-members within
their fields of membership include the following states6:
 Arizona
 Connecticut
 Georgia
 Michigan
 New Mexico
 Ohio
 Wisconsin

However, many of these states may also require the credit union have a low-income
designation from NCUA. For other states not listed, if the state statute provides parity
with federal credit unions, the credit unions could request approval from their regulator.

Credit Union Service Organizations (CUSOs) can offer services to non-members,

providing these non-members are within the field of membership of participating CUSO
credit unions.

In all cases, state chartered credit unions should check their state statutes and/or
regulators to determine feasibility of offering check cashing services to non-members.

Know Your Customer

Credit unions should comply with all applicable verification rules for new members and
even non-members when offering check cashing services, including:
 Member Identification Program (MIP) under the Patriot Act
 Bank Secrecy Act (BSA)
 Office of Foreign Assets Control (OFAC)
 Financial Crimes Enforcement Network (FinCEN)

6
Information provided by State Information and Research Department, CUNA, Inc.

Check Cashing: A REAL Solutions® Implementation Guide 18

 UBIT
State chartered credit unions (but not federally chartered credit unions) should be aware
that offering check cashing services to non-members may result in Unrelated Business
Income Taxes (UBIT), as follows:
 Unrelated business taxable income is the net income derived from unrelated
trade or business which is not substantially related to the organization’s purpose
or function.
 Be sure to keep records that allocate all reasonably applicable direct and indirect
costs to activities that might be asserted by the IRS to be subject to UBIT.

The following article from ProQuest addresses compliance issues when serving non-
members.

Compliance Considerations In Serving Nonmembers

Michael McLain, Valerie Moss, Nichole Seabron. Credit Union Magazine. Madison: May 2007.
Vol. 73, Iss. 5; pg. 76, 3 pgs

Abstract (Summary)
Federal credit unions now can offer limited financial services to nonmembers, thanks to the Financial
Services Regulatory Relief Act of 2006. The law amended the Federal Credit Union Act to authorize the
change. The National Credit Union Administration issued interim regulations in October 2006 and finalized
Section 701.30 on service to nonmembers in February 2007. With the law change, federal credit unions
now may offer additional services to nonmembers within their fields of membership (FOMs) and may
charge fees for them. To serve nonmembers, determine the identification and recordkeeping procedures
that good business and fraud prevention practices and the Bank Secrecy Act require. Federal credit unions
charging fees for cashing checks according to 701.30(b) should implement procedures for accurately and
quickly determining whether the nonmember cashing an on-us check is within the FOM. To comply with
other laws and to protect against fraud, credit unions must collect "nonpublic personal information" from
nonmembers to complete transactions that Section 701.30 now authorizes.

Full Text (1228 words)

Copyright Credit Union National Association, Inc. May 2007

FEDERAL CREDIT unions now can offer limited financial services to nonmembers, thanks to the Financial
Services Regulatory Relief Act of 2006. But first, understand the restrictions the new law imposes on those
transactions.

The law amended the Federal Credit Union Act to authorize the change. The National Credit Union
Administration (NCUA) issued interim regulations in October 2006 and finalized Section 701.30 on service to
nonmembers in February 2007.

Because of statutory constraints, federal credit unions traditionally had limited dealings with nonmembers.
With the law change, federal credit unions now may offer additional services to nonmembers within their
fields of membership (FOMs) and may charge fees for them. The permissible services in Section 701.30:

* Selling negotiable checks including traveler's checks, money orders, and similar transfer instruments;
* Cashing checks and money orders; and
* Sending and receiving international and domestic electronic fund transfers.

Congress passed this law at the Credit Union National Association's (CUNA) urging to allow credit unions to
serve people who otherwise wouldn't have access to these services at reasonable cost or convenience.
Many compliance issues, however, are associated with providing these services to nonmembers. The law
doesn't require offering them, so think through what services, if any, to offer.

Check Cashing: A REAL Solutions® Implementation Guide 19

 In deciding to serve nonmembers, consider the operational changes needed to comply with federal and
state laws. Several federal regulations and Uniform Commercial Code (UCC) provisions factor into your
decision. This list isn't necessarily all-inclusive.

Bank Secrecy Act

To serve nonmembers, determine the identification and recordkeeping procedures that good business and
fraud prevention practices and the Bank Secrecy Act (BSA) require.

Providing services under Section 701.30 for nonmembers triggers no formal customer identification
program (CIP) requirements because no formal banking relationship is established under BSA
regulations (see 31 CFR 103.121). Nevertheless, you must collect certain information during the
transaction-similar to CIP regulation requirements.

For instance, if a nonmember uses cash to buy traveler's checks worth $3,000 to $10,000, the credit
union must collect similar information it would require from members (name, address, Social security or
alien identification number, birth date, instrument type purchased [traveler's check], serial number, and
the amount). In addition, you must verify the nonmember's name and address through a "documentary
method" and document the verification.

You'll also need to obtain certain information when a nonmember wants to wire funds of $3,000 or more.
The information varies depending on the circumstances, such as whether the request is in person, by
someone other than the requester, and so forth. Verify the person's identity with identification bearing (at
minimum) the person's name, address, and photograph-identification generally acceptable for check-
cashing.

Federal credit unions will have to consider how to monitor for structuring to avoid currency transaction
reporting or other suspicious activity by nonmembers. Remember, currency transaction rules apply to
transactions exceeding $10,000. In addition, if you engage in many higher-risk transactions such as wire
transfers, you'll probably need software to identify and monitor nonmember use of permissible services.

OFAC regulations

Membership never is an issue where the Office of Foreign Assets Control (OFAC) is concerned. OFAC
regulations apply to all "U.S. persons" and cover every party to every credit union transaction. (The term
"U.S. persons" includes any U.S. citizen, permanent resident alien, entity organized under U.S. laws or any
jurisdiction within the U.S.-including foreign branches-or any person in the U.S.)

You must report any name matches to OFAC. True hits on the list require you to reject transactions or block
funds per OFAC's instructions. So credit unions already face the nonmember issue in OFAC compliance.

UCC issues

Federal credit unions always have had authority to cash checks drawn on a member's account ("onus")
regardless of the payee's membership status because this is a service to the member-drawer. The 2006
law now permits charging a fee for cashing on-us checks for nonmembers in your FOM.

Before the law, credit unions charging a fee for cashing on-us checks risked liability under the UCC
for wrongful dishonor. Section 701.30(b) should pre-empt state UCC laws and protect federal credit
unions from liability for wrongful dishonor if they charge fees to nonmembers in the FOM for cashing
on-us checks.

Section 701.30, however, doesn't cover charging fees to cash checks for nonmembers not in the FOM.
So cashing on-us checks for a fee for these nonmembers would open your credit union to liability under
the UCC for wrongful dishonor.

Check Cashing: A REAL Solutions® Implementation Guide 20

 Federal credit unions charging fees for cashing checks according to 701.30(b) should implement
procedures for accurately and quickly determining whether the nonmember cashing an on-us check is
within the FOM. You may decide it doesn't make sense to charge a fee to eligible nonmembers you'd
like to join your credit union, while not charging fees to ineligible nonmembers because of UCC
concerns.

Does federal law mandate particular disclosures when imposing a check cashing fee? No. The Truth in
Savings Act requires disclosures at account-opening or upon request, and neither of these situations
exists when a nonmember cashes a check at a credit union. Regulation CC check-hold disclosures aren't
applicable, because the credit union only is cashing checks for nonmembers, not taking deposits.

As a good business practice, inform nonmembers of the check-cashing fee prior to cashing an on-us or a
third-party check. Adverse judgments dwell on the fact that a noncustomer presenting an on-us check
received less than the check's face amount because the institution netted the fee from the check's
proceeds. Other cases raised concerns about ambiguous fee disclosures when cashing on-us checks.

Consider if your fee schedules and account agreements explain when you'll impose fees for cashing on-
us checks. Discuss with your attorney the best way to disclose check-cashing fees and procedures to
collect the fees.

Wire transfers

If you implement a wire transfer program for nonmembers within your FOM, review UCC's Article 4A and
the Federal Reserve Board's Regulation J governing wire transfers. Credit unions sending wire transfers
for members have the member sign a wire transfer agreement stating the credit union's terms and
conditions for making wire transfers, including each party's liabilities and responsibilities. Provide
nonmembers a modified version of that agreement.

You'll need different procedures for handling nonmembers' wire transfers because you have no account
relationships with them. You can deduct funds and fees directly from a member's account for outgoing wire
transfers. With nonmembers, collect funds and fees upfront and deposit funds into a special account until
wiring them. Similarly, hold incoming wire transfers until notifying the nonmember the funds have arrived.

Privacy

To comply with other laws and to protect against fraud, credit unions must collect "nonpublic personal
information" from nonmembers to complete transactions that section 701.30 now authorizes.

Credit unions must provide the same privacy protections to nonmembers as they provide to members
under NCUAs Section 716. Give the disclosure to nonmembers during the transaction.

Your credit union will encounter other issues while addressing requirements for serving nonmembers, from
marketing to disclosures. CUNA is working with NCUA to get more guidance on how Part 716 comes into
play.

A final note: Section 701.30 doesn't require it, but your board should adopt policies on services to
nonmembers. Include in the policy or board minutes why you're offering the services.

[Author Affiliation]
MICHAEL MCLAIN is senior compliance counsel VALERIE MOSS is director of compliance information, and
NICHOLE SEABRON is federal compliance counsel for the Credit Union National Association. Send compliance
questions to cucomply@cuna.com.

Check Cashing: A REAL Solutions® Implementation Guide 21

 6. Business Plans, Policies and Procedures
With a product design and pricing structure in place you can begin to develop a business
plan, policies and procedures for a fee-based check cashing service. Sound policies
and descriptive procedures for staff that indicate when the fee will be charged or waived
and what processes will be used to serve non-members are essential. This section
contains a sample business plan, policy guidelines, procedures and sample forms
offered by some of the credit unions or Credit Union Service Organizations (CUSOs)
offering check cashing services.

Business Plan
A business plan describes the purpose, objectives, features, and any underwriting
criteria of a new product or service. It generally includes projections for income and
expenses for some time period and can include a threshold point that would call for a
review of the product. The business plan is often used to obtain board approval for
moving forward with a product or service offering.

The following is a sample business plan.

Sample Business Plan

Fee-Based Check Cashing Program for Members and Non-Members

Purpose: To implement a fee-based check cashing program for members with less
than $100 in average aggregate monthly savings and for non-members.

Target Market: Non-members who are within our field of membership and are currently
using check cashers, and members who are primarily using the credit union as a check
casher.

Objectives:
 To increase fee income
 To increase membership by attracting non-members eligible for membership
 To increase savings balances by encouraging members to maintain levels that
forgo check the cashing fee
 To save users of check cashers money by offering a better rate service

Features:
 Fee of 1% of face value for checks of $500 or more
 Minimum fee of $5 for checks below $500
 Free for members with an average aggregate monthly savings balance of $100
(Using an average monthly balance will prevent members from depositing $100
into savings from the check proceeds, and then withdrawing the money to
prevent paying the fee)

Check Cashing: A REAL Solutions® Implementation Guide 22

 Underwriting Criteria or Procedures to Limit Risk:
 Only payroll checks from locally, known employers and reoccurring government
checks will be accepted, unless approved by management
 Individual must complete application at sign-up and all compliance requirements
will be followed whether a member or non-member
 Employment will be verified either through the most recent pay stub or by calling
the employer
 Checks over $1,500 must be approved by management

Collection Procedures for Bad Checks:

 Employer or government agency will be contacted, if possible, to determine
reason for returned check
 Payee will be contacted to make arrangements for payment of check
 No further checks will be cashed for payee if not paid in full

Marketing the Service:

 Members that cash checks will be provided with a flier for a month notifying them
of the upcoming fee and how to avoid a check cashing fee
 A news item on the credit union’s website and in its newsletter will inform
members of the new fee and how to avoid being charged the fee
 A banner will be hung in the credit union’s front window notifying non-members
that the credit union cashes payroll and government checks
 Fliers will be posted, as permissible, in nearby grocery and liquor stores and in
churches that the credit union will cash payroll and government checks
 Our SEGs and other nearby stable businesses will be invited to notify their
employees that we will cash payroll and government checks

First Year Income & Expense Projections:

A recent sampling of checks cashed for our members indicates about 200 members will
be subject to the new fee. The average check cashed is $750 bi-weekly. Assuming 150
members end up paying the fee, income to the credit union would be $29,250 annually.

It will take some time to build non-member awareness of the credit union’s willingness to
cash payroll and government checks. We have estimated for the first year we will cash
an average of 30 non-member checks per month. Using the same average check
amount of $750, first year’s annual income is estimated to be a nominal $2,700.

On the expense side, no additional cash or labor will be required to manage non-
member business the first year. Fliers and banners are estimated to cost $500. We
have estimated losses from one average check of $750.

Income from members: $29,250

Income from non-members: $ 2,700
$31,950
Flier & banner expenses: $ 500
Losses: $ 750
Net income: $30,700

Check Cashing: A REAL Solutions® Implementation Guide 23

 Measurements of Success:
 Increase net income by $30,700
 Encourage ¼ (50) of current members subject to fee to increase savings balance
to avoid the fee
 Attract 30 non-member check cashers per month
 Assuming local check cashers are charging 4%, save these non-members
$8,100.

Any Loss/Volume/Expense Threshold that Triggers a Review:

 Losses have been estimated to be $750; if losses reach $1,500, management
will review causes and modify underwriting criteria, if necessary.
 Non-member check cashers are estimated to average 30 per month; if this
business reaches 200 per month, management will review adequacy of cash and
staffing levels.

Policies
A policy that pertains to non-member check cashing services should be in writing and
have board approval. A sample “Non-Member Services Policy” is included below.

Sample Policy
Non-Member Services Policy

XYZ Credit Union will cash checks for non-members using the following criteria:

1. Types of checks that will be cashed:

a. Approved payroll checks
b. Government checks
i. No stale-dated or post-dated checks will be accepted.
ii. No personal checks will be accepted.
iii. No signed-over checks will be accepted.

2. The following information must be included on each check:

a. Date.
b. Financial institution drawn on.
c. Matching legal and written amounts.
d. Maker’s signature.
e. Payee.
f. Encoded routing and transit numbers.
g. Proper endorsement.
h. Payroll checks must read “Payroll” or a pay stub must be presented.

If all above criteria is not met, the item may not be cashed.

3. Proper endorsement:
a. Payee must be present and show photo ID.
b. Refer to XYZCU Quick Links program to verify check and customer.
c. If a check is payable to more than one payee (i.e., income tax refund) all
endorsements must be verified, or the item cannot be accepted.
d. Signed-over checks will not be accepted.

Check Cashing: A REAL Solutions® Implementation Guide 24

 e. Checks with restrictive endorsements will not be accepted.

4. New customer application and verification process:

a. Have the new customer complete a check cashing application.
b. Scan the customer’s drivers license or other unexpired photo ID and the
payroll/government check.
c. The following information must be verified prior to cashing the first check:
i. Customer’s address (using either the white pages, or verifying
with customer’s employer).
ii. Employment (contact employer directly).
iii. Frequency of payroll and approximate amount of checks (verify
with employer).
iv. Contact employer’s financial to verify that checks will clear, if the
business is unfamiliar.

5. Internal processing of new application, after verification:

a. Move scanned ID and check into database.
b. Pull up Check Cashing Customers on XYZCU Quick Links.
c. Click on Add New Record.
d. Fill in all information requested.

6. Procedures to be followed for each subsequent non-member check

cashing transaction:
a. Verify photo identification.
b. Pull up Check Cashing Customers on XYZCU Quick Links.
c. Enter last name, click Search.
d. Verify check and amount, look for any warning flags.
e. Click History, insert and type date, amount of check, (fee will calculate
automatically) and under Type list either the employer’s name, or what
type of government check you are cashing. Enter any comments as
appropriate.
f. If amount varies significantly from a normal payroll, or if the employer has
changed, STOP! Additional information and verification is needed before
the check can be cashed.
g. Cash check and charge fees on the Cusa system, using appropriate
transaction codes.
h. The fees for cashing non-member checks are as follows:
i. 3% of the amount of each check, with a $5 per-check minimum.

The Credit Union will sell money orders to non-members using the following
criteria:

1. Customers must already be approved for XYZCU’s non-member check cashing

service.
2. Money orders may be purchased with cash or with proceeds of approved payroll
or government checks only.
3. The charge for money orders is $2 each, for both members and non-members.

Check Cashing: A REAL Solutions® Implementation Guide 25

 Procedures
Expecting staff to properly and efficiently implement operational procedures requires the
procedures be in writing and that employees are expertly trained. See sample
procedures below for “Check Cashing for Non-Members at the CUSO” and “Guadalupe
Credit Union Procedures for Non-member Check Cashing.” Guadalupe Credit Union
uses a platform by TranDotCom which records and retains the application information
and completes compliance requirements.

In addition, samples of the “Application and Verification Process,” application forms, and
a check cashing spreadsheet and ID card are included.

Check Cashing: A REAL Solutions® Implementation Guide 26

 CUSO – Credit Union Center, Wichita, KS

Check Cashing: A REAL Solutions® Implementation Guide 27

 Guadalupe Credit Union Procedures for Non-member
Check Cashing:
1. Types of checks that will be cashed:
 Approved payroll checks from known businesses
 Government checks
 Others as approved by management

2. Types of checks that will not be cashed (unless approved by management):

 Personal checks or counter checks
 Checks from unknown businesses
 Stale-dated or post-dated checks
 2nd or 3rd party checks
 Checks with restrictive endorsements

3. The following information must be included on each check:

 Date
 Financial institution drawn on
 Matching legal and written amounts
 Maker’s signature
 Payee
 Encoded routing and transit numbers
 Proper endorsement
 Payroll checks must be type written and read “Payroll” or a pay stub
must be presented

4. Identification:
 Payee must be present and show government issued photo ID
 If a check is payable to more than one payee (i.e., income tax refund)
all payees must endorse the check, be present, and show government
issued photo ID.

5. New customer application and verification process:

 Complete check cashing form in TranDotCom
 Copy photo ID and scan it with your receipts
 Verify the following information:
o Customer’s address - use white pages, online phone book,
utility bill etc, or verify with employer.
o For payroll checks verify employment by contacting the
employer by phone. We will not cash payroll checks unless
employment can be verified.

6. Procedures to be followed for each subsequent check cashing transaction:

 Enter new check information in TranDotCom
 If different employer than we have on file, verify and enter new
employer.
 If different address than we have on file, verify and enter new
address.

Check Cashing: A REAL Solutions® Implementation Guide 28

 I Power Instructions: Post using the GCU Non-Member Trans Acct - 9082000
suffix 75

Post as three transactions:

1. Deposit the check.

Enter non-member’s social security (or ITIN) number in Transaction
Description - this is very important so that we can find the member’s info at a later
date if necessary.

Check Cashing: A REAL Solutions® Implementation Guide 29

 2. Post the fee as a Misc Recpt (3-Non Member Check Cashing Fee) transfer: Fee
is 1% of check amount, minimum $3.00. (Checks up to $300.00 fee is $3.00,
checks over $300.00 fee is 1% of dollar amount.)
Enter non-member’s social security (or ITIN) number in Transaction Description

3. Withdraw the cash (check amount minus fee amount).

Enter non-member’s social security (or ITIN) number in Transaction Description

Balance in suffix 75 after posting will always equal “0”

Do not give the customer any IPower receipts.

Enter the receipt number on the back of the check.

Check Cashing: A REAL Solutions® Implementation Guide 30

 TranDotCom Instructions:

Bring up TranDotCom with your username and password

Click on Tran Mgr

Click on Cash Management

Click on Check Cashing

Check Cashing: A REAL Solutions® Implementation Guide 31

 Enter the Customer Information and Check Information. If this is a returning
customer, the information will pre-fill after you enter the SSN. Be sure to change the
Check Information for the current check. Enter the IPower receipt number in the
Reference No. field.

Have the customer sign the receipt to acknowledge the fee. File the receipt in your
work. Do not give the customer the original receipt.

Check Cashing: A REAL Solutions® Implementation Guide 32

 CUSO – Credit Union Center, Wichita, KS

Check Cashing: A REAL Solutions® Implementation Guide 33

 Sample Applications

Check Cashing: A REAL Solutions® Implementation Guide 34

Check Cashing: A REAL Solutions® Implementation Guide 35
 Sample Check Cashing Spreadsheet & ID Card

Check Cashing: A REAL Solutions® Implementation Guide 36

 7. Marketing the Product
Marketing the credit union’s check cashing business may call for alternative approaches
from the credit union’s normal marketing strategies for some of these reasons:
 The credit union itself may be viewed as intimidating and unfriendly to those
consumers who use the more informal check cashing stores.
 Those using check cashers will probably not be aware of the fact the credit union
is willing to cash checks at a better rate than check cashers.
 If the credit union is implementing a check cashing fee that will apply to members
not currently paying a fee, it will need to address how to inform members of the
fee and how to manage angry members.

Marketing Strategies
To overcome these challenges, the following are some suggested strategies to create
awareness and presence in the community as a means of advertising the credit union’s
check cashing operation.
 Develop relationships with community organizations that serve or work with lower
income consumers and are viewed as trusted partners by consumers. This could
include churches, human services departments, or community coalitions.
 Develop relationships with employers in close proximity to the credit union
facilities and with SEGs served by the credit union. In particular, employers that
are likely to have low-wage employees should be targeted.
 Fliers highlighting key products and services and pricing can be used for
distribution by community organizations and employers. These could also be
posted at area community events. (It may be necessary for these fliers to be in
different languages, if trying to reach an immigrant population.)
 Banners or signs can be used on the exterior of the branches notifying non-
members that payroll and government checks can be cashed there. (Be aware
of any signage ordinances that may be in effect.)

Marketing & Media Plan

The credit union should have a marketing and media plan laid out for its launch of a
check cashing program. The plan should address how to inform and manage current
members that may be adversely affected by a new fee. The following is a sample
marketing and media plan:
a) One month before the launch of the check cashing fee affecting current
members, the credit union will begin distributing fliers to all members cashing
checks notifying them of the impending fee and what steps they can take to avoid
the fee.
b) At the same time, notification of the impending fee will be included on the credit
union’s website and in its newsletter, also instructing members how to avoid the
fee.
c) Four to six months after implementation of the member fee, the credit union will
begin its check cashing services to non-members, initially as a trial operation.

Check Cashing: A REAL Solutions® Implementation Guide 37

  One branch will be used for the trial operation with a nearby CU SEG.
 The SEG management will be informed of the CU’s check cashing
and pricing policy. The CU will obtain permission to distribute fliers
with employee paychecks notifying employees of our check cashing
procedures. If possible, fliers will also be posted in employee lunch
rooms.
 Extra staff will be on hand at the branch facility to help sign up and
cash non-member checks for the initial launch.
 The trial operation will continue with this single SEG for two months to
ensure efficient operations.
 A second branch and SEG operation will be tested following the initial trial.
 Thereafter, a full launch will be initiated with press releases to local media.
 All CU SEGs will be notified of the CU’s non-member check cashing operations.

Marketing Materials
The credit union should identify what marketing materials it will use as part of its
marketing plan, and what should be emphasized in the plan. A sample customer
information sheet is shown below along with a sample flier on the next page.

Sample Customer Information Sheet

Thank you for your interest in handling your check cashing transactions with XYZ Credit
Union. Please observe the following guidelines:

1. We will only cash approved payroll and government checks. Maximum check
size that will be accepted is $2,500.00.
2. Our check cashing fee is 1% of the face value per check presented, with a
minimum fee of $5.00.
3. Address and employment verification must be completed before your first check
can be cashed. If you change or add an employer, a new verification will be
performed before cashing that check.
4. Unexpired photo identification must be presented each time you cash a check.
5. Checks will only be cashed in the lobby or in the first drive-up lane.
6. 2nd party checks, checks with restrictive endorsements, post-dated checks, or
stale-dated checks will not be accepted.
7. If you wish to cash an approved check that is made payable to more than one
payee (tax refund check, for example) all payees must be present, and show
photo identification.

Check Cashing: A REAL Solutions® Implementation Guide 38

Check Cashing: A REAL Solutions® Implementation Guide 39
 8. Education and Training
Have staff members been involved in the planning and design phases? Do they
understand the reasons for implementing a fee-based check cashing program for
members and/or non-members? If not, a staff education plan should be developed.
Tellers faced with charging check cashing fees to members who previously received the
service for free may have difficulty withstanding complaints from “their” members and
may “help” them get around the fee. A staff education plan should address at least
some of the following:
1. The reasons for implementing a fee-based check cashing program
2. Who uses check cashers and why
3. How employees’ efforts will contribute to its success
4. Specific techniques they can use to make new members feel comfortable in the
credit union environment
5. How the credit union philosophy of helping people with limited incomes fits into
the credit union’s action plan
6. Why users of check cashers will benefit from the credit union’s check cashing
service
7. How and when to cross-sell services and encourage new members to access
other products and services; i.e., as tellers gain the trust of consumers – typically
after 3-5 visits – they will be in a position to encourage customers to try a product
on the next rung of the asset-building ladder
8. If the target market for the check cashing service is a new segment of members,
such as immigrants or ethnic/racial minorities, with which staff may be unfamiliar,
the education plan should include cultural diversity training in order to overcome
negative perceptions and to help staff develop cultural awareness

Staff Training Plan

Once staff members understand the reasons for implementing a fee-based check
cashing program, they will be more receptive to a training plan. A training plan should
include at least some of the following:
1. Written procedures that cover:
 When to charge the fee to current members
 Application/identity/compliance steps for non-members or new members
 Types of checks that are acceptable
 When to verify employment
 If applicable, how to set up non-members on approved check cashing list
 (See samples of Check Cashing for Non-Members in “Business Plan, Policies,
and Procedures” section
 (See sample Application and Verification Process in “Business Plan, Policies,
and Procedures” section)
2. Once written procedures are developed, a check list can be created that
employees can use to ensure all operating procedures are followed.
3. Cross-selling charts can help employees determine which products to sell when.

Check Cashing: A REAL Solutions® Implementation Guide 40

 Use Rick Stout’s endorsement of a check cashing program to help with your education
endeavors.

Leap into a Check Cashing

Program!
Rick Stout SVP
Charter Oak FCU

1. A successful Check Cashing Program requires just a bit of imagination. It also

needs a champion. This person must get the Board and staff to rid them of “Fee
Fear Factor”. The champion must possess patience and a strong conviction
regarding the merits of the program so as to overcome early doubts and
misgivings.
2. Senior management must possess a willingness to examine the existing
membership and identify those who appear to be traditional members but who
only use check cashing services. This group will form the core of your check
cashing users.
3. Your new program will enable the credit union and these members to experience
a continuing relationship that is both fair and balanced. This group will now be
paying their own way.
4. In addition, you will be able to market your credit union to a whole new
constituency who, with time, will provide many opportunities to be converted into
regular members.

Our program’s inception was February ’02. We charge 1% of the face value of the
check with a $1 minimum charge. The impact on the bottom lines since that time was:

2002 2003 2004 2005 2006 2007

Fee $55,400 $102,000 $115,000 $134,000 $134,000 $120,300
Income

Our credit union has earned more that $660,700 in fee income since we began check
cashing services. And our member have saved at least that much in additional fees they
would have most likely paid check cashers. We have only experienced $2,000 in losses
and have none since we better understood the program in 2004. Other income often
overlooked is fees from complimentary products such as international wire transfers and
money orders.

Check cashing programs are easy to implement. We promote primarily with posters,
signs and hand outs. To date we have cashed more than $66 million in checks.

Where to begin?
1. Present your ideas to Senior Staff and obtain their commitment. Get rid of
“Fee Fear Factor” right up front! - It is contagious! It can doom your program!

2. Get your Board’s approval. Remind them that credit unions are cooperatives
- everyone pays their own way.
3. Know the competition, their pricing, marketing and business practices. You
don’t need to reinvent the wheel in order to run a successful program.

Check Cashing: A REAL Solutions® Implementation Guide 41

 Things to think about
1. Consider how your member’s’ purchasing power has been increased by an
amount at least equal to what you have collected in fees.
2. Consider that you have the opportunity to develop long-term relationships with
different segments of the community.

Is this a good decision for your credit union?

Success requires you to think outside the box! You need to be very un-credit union-like
since you are going after folks who are often times unfamiliar with credit unions.

1. Credit Union Employees - Need to be indoctrinated not trained.

Indoctrination is different from training. For example: Your employees know
how to cash check s and sight inspect them. This is not where to focus your
efforts.
 Training = is teaching so as to make it proficient. Indoctrination = is
instructing in theories/beliefs with the intent of converting or eliminating
(the “Fee Fear Factor”).
 Get employee buy-in. Without it you will find there are more than 101
reasons for waiving or ignoring a check-cashing fee.
 Place heavy emphasis on how fees benefit the credit union and the
membership (ability to compete, new technology, employee benefits
etc.).
 Consider incentives to the branch with highest amount of fees collected
each month. Use individual cash rewards for tellers with the highest
amount of fees collected each week.

Create buzz, buzz and more buzz about check cashing fees!

2. Area Employers and Tax Preparation Companies - Get the word out! In-
person visits work best. Have handouts, posters, etc. Use in-house print
materials. Encourage local employers to use your literature as
attachments/inserts to pay envelopes. HINTS: Direct mail independent tax
preparers in early January. Follow up with a second letter at the end of that
month. Avoid employers that mandate direct deposit or those who employ
tech savvy individuals (to reduce fraud).

3. Users of Check Cashing – check the cashing public themselves to help you
promote. Create posters for display in storefront windows of nearby gas
stations, convenience and package stores etc. HINT: Don’t overlook local
social agencies, sports bars, fraternal organizations like the VFW and
American Legion, churches and even places like little league, softball and
soccer fields.

4. Ready to begin? Require who signs up for this service a par value member.
Like other members, check-cashers pay a membership fee and are required
to open a share account. If your par value minimum balance is greater than
$.01, you may wish to consider modifying the requirement.

5. Don’t create obstacles – eliminate them!

Check Cashing: A REAL Solutions® Implementation Guide 42

 Avoid telling “Check Cashing Members” they have become a member until a relationship
is built. Most are not interested in this and many of the members we served just walked
out and did not come back. REMEMBER individuals interested in this service are
generally not comfortable with financial institutions nor are they comfortable with the
hassles of maintaining an account. Don’t scare them away with unnecessary details or
try to sell them other services. Do however remind them ancillary products like pre-
stamped envelopes, money orders and wire transfers are readily available at affordable
prices.

Also remember to:

1. Gather all of the same information on a “Check Cashing Member” as you would
for any other member. This means two forms of ID and running the member’s
name against OFAC etc.
2. We are always compliant with the Patriot Act and our own MIF Policy &
procedure. We want to know who the person is who enters our office expecting
to exchange a piece of paper for cash! It is important to know who are cashing
checks for.

New Competition
We have evolved! The marketplace/competition has changed!

1. Prior to ’06 we did not attempt to cross sell these members other services.
Today we endeavor to convert elected individuals into traditional members –
using a soft sell.
2. We modified our approach with this group in response to changes in the
marketplace (i.e., the erosion of core deposits, replacement deposits consisting
primarily of higher cost certificates, shrinking margins and a reduction in ROA).
3. Today we view a new checking account relationship as more valuable than fee
based check-cashing relationship. This change in thinking explains why our fees
in ’06 were virtually the same as the prior year and down somewhat in ’07.
4. In ’06 & ’07 we converted approximately 450 check cashers into checking
account holders. Many have evolved into traditional members with all of the
usual services.

Observations:
We have found that our “Check Cashing Members” are a diverse group.

1. They range from professionals who have checking accounts elsewhere but
choose to cash their check with us because of a convenient location.
2. Many are new to America and unfamiliar with the banking system. (I suspect
there are undocumented individuals in this group.)
3. The vast majority, however, are individuals who simply choose to conduct their
business the way their parents conducted business. Although we may view their
methods as unusual they see them as being quite normal.
4. Almost all of our check cashing members are gainfully employed. They are rich
and poor, nice and nasty and consist of many different races, religions and
national origins.
5. Check cashers are valuable to our membership. They are willing to pay a fair
price for a needed service. They are honest and hard working.
6. Over time individuals within this segment can be convinced to use other
products. The ability to convert to traditional services is a bi-product of earning

Check Cashing: A REAL Solutions® Implementation Guide 43

 their trust and confidence. Your tellers are great at creating one-on-one
relationships! Leverage this!
7. Tracking and monitoring results, especially when the program is in its infancy, is
crucial to success. Intra-office contests each month are an effective way to both
increase fees collected and overcome “Fee Fear Factor”. COOs should plan on
visiting each location every month to promote program.
8. Strive to continually find ways to expand the public’s awareness of your program.
We cannot overstate the importance of getting the word out even long after the
program is established.

Know what not to do

1. Don’t try to be all things to all people. Limit the checks accepted to payroll
checks from known local employers, government checks and tax refund checks.
2. Never take third party checks, postal money orders, and especially beware of
bank checks drawn on out of district institutions. (Individuals needing to cash
instruments like these on a regular basis are better suited for a checking account
and regular membership where normal holds can be utilized.)
3. Never accept checks of any type when the member indicates they received the
item from a person they met over the Internet. Avoid accepting any checks that
have anything to do with an Internet sale or require the member to wire money
back to a foreign country.
4. Except for a tax refund check, be real suspicious when a “Check Cashing
Member” wants you to cash any unusually large item. We have found, except for
the weekly paycheck, these individuals seldom have anything for you to attach in
the event they are passing counterfeit or fraudulent items.

It is 2009. If you don’t have a Check Cashing Program you are missing huge
opportunities. A check cashing program generates revenue for the credit union,
provides consumers a much lower price for a financial service they want and it provides
a steady stream of new members. What are you waiting for? Start a check cashing
program today.

Check Cashing: A REAL Solutions® Implementation Guide 44

 9. Implementation
Once product design, pricing and board approval have been completed the credit union
is ready to begin planning implementation. The following checklist is offered as an aid to
credit unions to ensure implementation steps and procedures are not overlooked. These
steps can be further broken down with duties and oversight assigned to various
personnel, along with completion dates.

Implementation Steps

 Develop written policies for any new check cashing fee that applies to members.
 Develop written policies for non-member check cashing services that specify type
of checks accepted and procedures.
 Develop written procedures for employees that address non-member application
and verification processes.
 Develop written procedures for employees that address member/non-member
check cashing processes.
 Develop employee checklists to ensure procedures are followed.
 Generate and implement a training plan for employees.
 Determine method of tracking non-member records and address any data
processing needs.
 Develop a non-member application form, if necessary.
 Develop a check cashing ID card, if necessary
 Establish a marketing and media plan.
 Develop marketing materials and news/information releases to members and the
media.
 Establish measurement criteria that will be monitored and set up a monthly
monitoring program.
 Report results to board and staff on an on-going basis.

Check Cashing: A REAL Solutions® Implementation Guide 45

 10. Measuring Success
What measurement criteria will you use to determine if your check cashing program is
successful? There are at least five different measurement tools that can be used.

Income Goals
Depending on your pricing strategy (i.e., to make a profit or break-even), income goals
may or may not be a measurement of your program’s success. At the least however,
you should track income from the program to ensure it is sufficient to cover any check
losses. Most credit unions will want to cover some or all of their operating expenses
associated with the check cashing program as well, particularly if offered to non-
members. If the operation is losing money, the credit union can make the decision how
long it will continue to provide the service as a loss leader or what changes to make to
the program to increase revenue or to cut costs.

Volume & Growth Goals

Some potential statistics or demographics to track include:
 Number or percent of members paying a check cashing fee
 Number of non-members using the service
 Number of new members who joined the CU to take advantage of its
check cashing service
 Number of non-members who converted to membership to take
advantage of other services
 Growth in # of non-member checks cashed

Loss Goals
When your credit union made the decision to offer non-member check cashing services,
it more than likely set some caps or thresholds for losses. Have you been able to stay
under the threshold or do you need to make some changes in procedures to reduce
losses?

Savings to Members
How much have your members saved using your check cashing services versus a
traditional check casher? This savings is one of the biggest benefits/impacts your
program is providing to your members and non-members using the service. Flaunt the
amount you are saving consumers. Tell your members, tell your board and staff, tell
your community, and tell your policy makers.

Graduating Members into Other Services

Moving your members into other services should be the ultimate and longer-term goal of
any check cashing operation. Some suggested products to help check cashing
members move into more traditional financial products and services are offered here.
Credit unions should consider taking inventory of their products and services and
determine where gaps exist when it comes to helping members move up the ladder to
productive wealth-building.

Check Cashing: A REAL Solutions® Implementation Guide 46

  Holiday or savings club account to help members save for the
holidays or other special purposes. Members should be able to add to
the account at the time they cash their checks.
 Fresh start/2nd Chance Checking/Checkless Checking account for
members who have had prior challenges in managing a checking
account. Making it difficult to overdraft the account or limiting overdraft
activity can help members get into or back into a transaction account.
 Payday alternative loan for members with short-term cash emergencies
who may not qualify through traditional under-writing criteria.

Check Cashing: A REAL Solutions® Implementation Guide 47

 11. References
Brookings Institute, “From Poverty, Opportunity: Putting the Market to Work for
Lower Income Families,” 2006.
http://www.brookings.edu/reports/2006/07poverty_fellowes.aspx.

Center for Financial Services Innovation Study, “The Power of Experience in

Understanding the Underbanked Market,” 2007.
www.cfsinnovation.com/doc.php?load=/keybank_paper.pdf

Center for Economic Progress presentation, “Doing Good is Good for Business:
Credit Unions and Working Families.”
http://www.realsolutions.coop/solutions/transaction-products/new-member-
products/vita-sites

Consumer Federation of America, “Cashed Out: Consumers Pay Steep Premium

to ‘Bank’ at Check Cashing Outlets,” by Jean Ann Fox and Patrick Woodall,
2006.
http://www.consumerfed.org/pdfs/CFA_2006_Check_Cashing_Study111506.pdf

Check Cashing: A REAL Solutions® Implementation Guide 48