CASHING IN ON CHECKS

When Thomas E. Nix Sr. and his son, Thomas Jr., found that they were regularly cashing checks for 4,000 customers at their grocery store on the edge of Watts, they decided that they were in the wrong line of work.

So the father-son team opened a business in 1978 where customers could cash checks for a fee but without the foodstuffs.

“As soon as we opened the doors, people started coming in droves,” Nix Sr. said, and the Nixes almost immediately had to expand to 14 teller windows from the original four. The growth didn’t stop there: Nix Check Cashing recently opened its 19th location in Southern California.

Such check-cashing outlets are popping up on street corners and in mini-malls in California and across the nation. Where dozens existed a few years ago, hundreds now dole out cash from behind bullet-resistant glass. Once found only in low-income or industrial areas, check-cashing operations are appearing in more affluent communities and attracting a better-paid clientele.

“The business used to be defined as the welfare bank,” said one longtime operator of check-cashing centers. “Now you get mainstream workers--blue and white collar--and the locations look more like banks.”

Owners of check-cashing outlets credit much of their success to the deregulation of financial services in the early 1980s. The increased competition within the financial industry that resulted caused banks to look for more profitable ways to do business, often at the expense of the small customer. Banks and savings and loans began to charge more for some services, such as checking, and to close branches, usually those in low-income neighborhoods.

But critics contend that those who go to check cashers with their payroll or government checks and then buy money orders to pay their bills are locked into a high-cost way of banking.

Even those who run check-cashing stores admit that the largely unregulated business is plagued by an unsavory reputation that they maintain is caused by a small segment charging big fees on checks, usually high-risk items. What’s more, some established owners are worried about some small operators who are entering the business without insurance, with little security and even less experience.

For Chinatown resident Chawalit Asachinda, the issue is simple.

“I don’t like checks. Banks charge too much,” he said, emerging from a downtown check-cashing outlet with a wad of bills.

“I like to carry around cash. It makes me feel good. Women like men with a lot of cash.”

Sara Olguin, who lives in downtown Los Angeles, doesn’t have a checking account. Instead, she puts her retirement income into a savings account and pays her few bills with money orders.

“I think I just don’t care for them or something,” she said. “With checking, I think I would spend money on foolish things.”

To a significant number of consumers, banks have become foreign territory. A survey conducted for the Federal Reserve Board in 1983 found that roughly one in five households did not have a checking account. Most were low-income people; for example, 36% of families with annual incomes below $8,400 did not have any bank accounts, the survey found.

To find out why, the American Banking Assn. commissioned a study two years ago that found that nearly half of those surveyed said they did not want or need an account. Many said they didn’t have enough money to make a checking account worthwhile, could not afford an account or didn’t trust banking institutions.

Check-cashing centers are generally run by small entrepreneurs who own one or a few outlets. Some small chains have appeared with 15 to 40 centers, and a few are even larger.

Until recently, Gulf & Western was the biggest name in the business, owning a chain of check-cashing stores in the Southwest called Associates Cash Express. The chain was sold late last year to its management and private investors, and the name was changed to Ace Cash Express.

In California and in most other states, check-cashing centers are unregulated by government; operators can charge whatever they like.

California check-cashing outlets once were required to charge no more than 1% of the face value of a check, but that limitation was lifted in 1981 by the Legislature after some operators complained that they were being hurt by inflation and competition.

Local consumer groups across the country that belong to the Consumer Federation of America report that check-cashing centers typically charge 1% to 2% of the face value of a check but charges can go as high as 10%, Executive Director Stephen Brobeck said. Money orders generally are sold for as much as $1 or $2 above face value, he said.

Expensive Way to Bank

Someone cashing $10,000 in checks a year would end up paying $200 in check-cashing fees at 2%, he said, not including the cost of money orders to pay bills.

“It’s a very expensive way to do your banking,” Brobeck said.

Fees on non-interest-bearing checking accounts average $103.01 a year, up 7.6% from the $95.70 average found last year, according to a survey of 74 banks released early this month by the Consumer Federation of America and San Francisco Consumer Action.

Major banks generally charge $3 to $5 to cash a payroll or government check for people without accounts--if they agree to cash such checks at all, industry sources said. Some branch managers have the authority to waive the fees.

“It’s true that rates have gone up,” said Kirk Willison, a spokesman for the American Bankers Assn. “But geez, it’s still a better deal to have your money in a bank than to go to one of these check-cashing services for most consumers.”

Banks and check cashers could argue endlessly about the differences in their charges and who gives better service.

The spread between what banks and check cashers charge “is very close,” said Nix Jr., who runs the family check-cashing business and a developed a photo identification system that the company now sells to many of its competitors. “What is not close is the service. . . . Banks have moved away from the rank-and-file customer.”

For example, many check-cashing outlets are open every day and operate beyond traditional banking hours. They don’t put holds on checks and they claim that their lines are shorter than those at banks.

“Some are open 24 hours a day, 365 days a year, which is something a bank would never offer,” said Wallace M. Swanson, chairman of Ace Cash Express, which owns about 80 check-cashing centers in Texas and Colorado. “Convenience . . . is why it’s not at all unusual for a meaningful part of the middle class to use check-cashing services.”

To be sure, financial institutions compete in the convenience derby by offering automated teller machines, which operate around the clock, and most savings and loans and some banks are open Saturdays.

“Check cashers are like 7-Elevens,” said one check casher, who didn’t want his name used because he is involved in delicate negotiations to buy and sell several operations.

“You go to a 7-Eleven and buy a loaf of bread and a quart of milk and you may pay about 50% more, but you don’t care because time is the issue,” he said. “Time has become far more important than a couple of dollars here and there.”

And many banks have regulations that make it difficult for a small customer to open and maintain an account or cash a check even if he or she has an account, said Fred Kunik, who owns check-cashing businesses under the names Cash It Here, Mobile Money and Golden Gate Check Cashers.

For example, he said, someone with $100 in a checking account probably would not be allowed to cash a $500 check.

“There’s a segment of the population that lives from check to check,” said Kunik. “They live so close that if they make a mathematical error, they’re bouncing checks.”

“The banks don’t really cash checks,” said Sheldon Stein, owner of 15 Community Check Cashing centers in Southern California. “They transact business through an account.”

All the talk of competition between banks and check cashers is misleading, Kunik added, noting that banks have sent customers his way when they couldn’t cash their checks. “On a practical level, the industries really work hand in hand,” he said.

Some Basic Accounts

The increased charges and regulations on some bank services have led to calls for “basic banking” accounts--generally an account with reduced fees and a low minimum balance.

The American Bankers Assn. said a recent survey discovered that 44% of the nation’s banks now offer such an account, but Brobeck of the Consumer Federation of America said he believes that the number actually is much lower.

Forcing banks to cash government checks if they want to receive government deposits is the subject of a current bill sponsored by Assembly Speaker Willie Brown (D-San Francisco).

But beyond the push for basic banking accounts, consumer and community activist groups say that they are too preoccupied with other issues to seek any form of regulation on check-cashing services despite their apparent distaste for the industry.

“It’s hard to know who is the enemy,” said one community activist. “Is it these check-cashing places or is it the banks that aren’t providing these services?”

“It’s really hard for people who get welfare checks and then have to pay so much,” said Elena Ackel of Legal Aid Foundation, a public-interest law group in Los Angeles. “They don’t make that much money anyway and then they have to go to those gougers.

“People have to pay their bills through money orders and that’s an absolute disaster” because if you lose the money order or the stub, proving that you purchased the money order can be difficult without the identification number, Ackel said.

In addition, “people hang out there and mug the people as they come out,” she said.

The Los Angeles Police Department does not keep statistics on crime around check-cashing centers.

At the Southeast Division police station, robberies of welfare recipients who have just cashed their checks at supermarkets are a bigger problem than check-cashing operations, said robbery supervisor Mike Calagna.

Only One Major Problem

In the 77th Street Division in South Los Angeles, said robbery detective Don Schwartzer, “there’s nothing that pops into my mind that’s a major glaring problem” with the exception of one check-cashing business on a corner “where every crum-bum that breathes hangs out.”

The prospect of re-regulation worries some check cashers because of the rising costs of doing business. Stein of Community Check Cashing estimated that insurance costs have jumped 500% to 600% and bank costs have increased 400% to 500% since the rate caps were removed in California in 1981.

Banks costs include all sorts of fees, including a charge for the currency paid out to customers that can range from 80 cents to $1.05 per $1,000 of currency. “Bank charges are a significant part of check cashing,” and can equal 5% to 7% of an operation’s revenue, Nix Jr. said.

The check-cashing business can be fairly profitable, industry insiders say. After paying such essentials as rent, employee salaries, bank costs and security expenses, a one-shop operation could take home profits as high as $40,000 a year, they say.

But increasing competition is cutting into the return.

“It used to be a good business, but it’s going down,” said Jerry Brown, an entrepreneur who owns three check-cashing centers in Long Beach. Brown said that when he opened his first check-cashing operation in 1983, there were only two others operating in Long Beach. Now there are about 20 in town.

Brown, like many of his competitors, tries to draw customers by offering a variety of services. At his American Service Center and PCH Check Cashing locations, Brown peddles money orders, Western Union services, air-freight shipping, income tax preparation, photocopying, passport photos, mail box rentals, stamps and gift wrapping.

“It takes a lot because so many places opened up,” he said.

Fees Vary With Risks

Some check-cashing operations have carved out a niche cashing particularly high-risk checks, and some of those charge high rates--as much as 20% in some cases, some check-cashing operators say. Fees can vary depending on the amount of identification a customer has.

“I’m not a rabble rouser, but I really get disgusted with the rates that some of these places charge, especially for a small check,” said Tom Gardner, owner of All City Check Cashing in North Hollywood. Gardner said he charges a flat 1.5% for all checks.

“You get to feel for these young people who are trying to make it, and ripping them off is not my idea of fun,” he said.

High fees are becoming more unusual, check cashers contend.

High-cost check cashers “are the minority though, of course, they get all the attention,” Nix Jr. said. “The industry is starting to have some credibility, but it has a lot of bad images to overcome. It has a bail bondsman image.”

The risk in cashing even what appear to be ordinary checks can be high, check cashers say. Many check cashers refuse to take personal checks. “That’s the first no-no in check cashing,” Brown said.

“The fact that somebody has ID up their arm doesn’t make them good,” Kunik said. “The fact that somebody doesn’t have ID doesn’t make them bad. There’s an art to it.”

“It takes a lot of judgment and that gut feeling. You’ve got to be able to feel it,” Brown said.

“You can see a person coming across the street and you get a gut feeling in your stomach that this guy has something wrong with him, that he’s going to do something wrong to you,” he said. “Nobody can teach you that in a class.”

Few Checks Bounce

No one keeps industry statistics on how many checks bounce. At Nix Check Cashing, the company is unable to collect about 7/100ths of 1% of the checks it cashes, equal to about 5% of their fees, and those must be taken to small claims court, Nix Jr. said.

Brown said less than 1% of the checks he cashes bounce. “We haven’t had a bad check in three months,” he said.

About 1% of checks cashed at banks are bad but about half clear the second time they are run through, said American Banking Assn. spokesman Willison.

The risk also means a fairly high failure rate, particularly among newer operators who have little experience. Some are cutting corners by forgoing insurance and adequate security measures, competitors say.

“It does scare me, it really does,” Stein said. “It’s fraught with problems.”

At Nix Check Cashing, about half of the customers are Latino and 45% are black. The centers generally attract people with incomes of $20,000 or less, but “what we didn’t realize is that people who make up to $500 a week would come in,” Nix Sr. said.

From its beginnings nine years ago in an abandoned gas station, Nix has become a sophisticated operation and is one of the few chains to advertise.

One company television ad employs the Dodgers’ Spanish-language radio announcer Jaime Jarrin--a well-known figure in the Latino community--to assure viewers that no customer information will be given to the U.S. government. In April, the Easter Bunny passed out candy to children at Nix stores.

“I would like to tell you we were smart enough to figure out what would happen in the banking industry,” Nix Sr. said, “but we were just in the right place at the right time.”