Where Credit Is Due

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Parasites of the poor. Loan sharks armed with a license and a trade association. Check cashing places have some serious p.r. problems. A lot of very vocal people consider a check casher to be one small step up from a pawnshop and only a hairsbreadth away from a swindler.

Community development credit unions, on the other hand, are exalted as the saints of the urban financial services world, noble nonprofits devoted to serving poor and working-class customers. Frequently based out of churches or neighborhood organizations, they are founded on the principles of good works and good morals, helping people of meager means into sensible thrift.

Come February, though, it’s going to be much harder to tell the black hats from the white hats. The Bronx’s 30-year-old Bethex Community Development Credit Union is joining forces with two Bronx check cashing chains, Rite Check and Kimball Check Cashing. Once their controversial plan is in place, the check cashers will begin offering low-cost services to Bethex members throughout the Bronx. Instead of traveling all the way to the credit union’s main branch on Jerome Avenue in order to cash or deposit checks, members will be able to drop by any one of eight check cashing stores. They get instant account access, shorter traveling times, and better hours, and the credit union picks up the tab.

For Bethex, it’s a way to provide more services to more members without the expense of building new branches. And for the check casher, it’s simply more business–more customers, and a chance to offer new services that might provide an edge against the competition.

But in the world of low-cost banking, the project sounds like Greenpeace forming a new joint venture with a whale meat cannery. Although it has yet to be approved by the two regulators that oversee these industries, the project has already raised some eyebrows. “It’s the kind of thing that runs into high praise and high condemnation,” admits Bethex treasurer/manager Joy Cousminer. After all, it proposes a controversial idea: that these two industries, working in tandem, can solve some of the monetary problems that have plagued the Bronx ever since the banks backed out.

“There are both check cashers and credit union people that will be extremely hostile to it,” says Joseph Coleman, Rite Check’s president. “When enemies become friends, people start wondering. It shakes them up. It will force them to rearrange their mental furniture.”

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Among advocates for the poor, check cashers have an unparalleled reputation for villainy. They are denounced as thieves, opportunistic fungi that sprout up when legitimate banks close down branches and disappear–a process that New York’s outer-borough residents have endured for decades.

The critics do have a point. Check cashers don’t help you save money, build credit or buy a house. In New York, almost all they do is give fast cash–for a 1.4 percent fee–and let you pay your bills. In some states, they are also downright sleazy, tangled up in fraud and handing out short-term “payday” loans that ensnare unwitting borrowers in a cycle of crushing debt.

“I’m very skeptical about the motivations of check cashers,” says Sarah Ludwig of the Neighborhood Economic Development Advocacy Project, a group that works to improve access to credit in poor neighborhoods. “They are not renowned for serving low-income people in the interest of the consumer.”

That’s why this Bronx project is extraordinary. Even though they generally share the same turf, check cashers and credit unions generally glare at each other from across lines drawn in the sand.

But that didn’t stop Cousminer and Coleman. When they met at a South Bronx Overall Economic Development Corporation breakfast a few years ago, they got to talking about their respective businesses. She’s a credit union trailblazer, with more than a quarter-century in the industry. He’s an ex-banker and former president of the Check Cashers Association of New York who married into a 50-year-old family-run business. Both are very convincing talkers, and they began to realize that a partnership could benefit them both. (She now calls him a “charmer,” and he refers to her as a “pioneer.” )

In the deal they cooked up, the check casher operates like a light version of a credit union branch. The outlets rely on a technology called Point of Banking terminals, little machines hooked in to NYCE, the major electronic inter-bank network. Once the program gets underway, Bethex members will be able to walk into any of eight check cashing branches, go to a teller, type in their password on the machine–which looks sort of like a debit card terminal at a retail store–and hand the check over to the cashier. For paychecks, the money is immediately accessible. The credit union member can get cash back right away, or write checks that draw on the account, all without paying any fees. (Bethex covers transaction fees, ranging from 70 cents for a deposit to upwards of $4.50 for cashing paychecks.) The check cashers’ branches will also carry brochures and membership applications for the credit union.

For the credit union, it’s a chance to attract new members and offer more convenient services without building new branches or extending hours. “We want to serve all the people who could use our service,” explains Cousminer. “It’s so difficult for lots of people to get to us, and we have a hard time getting the word out.” She figures that, even though the credit union is responsible for fees, increased membership will make the deal worthwhile.

Coleman says it makes sense for him, too, because the arrangement allows Rite Check to expand services and attract new customers. “From our perspective, a credit union is the logical partner,” he says. “They are experts at serving low-income customers, but they lack the retail infrastructure. We have that, and we have the products they lack. For them, it’s cheaper to pay us to handle transactions than to build branches all over the borough. They are outsourcing transactions to us.”

Coleman is a passionate and articulate defender of the morality of check-cashing, and it’s apparent that for him this is not just a business deal. He ardently denies that check cashers are predators, pointing out that his businesses offers services that banks won’t provide, in neighborhoods banks won’t go to, at modest, state-regulated rates. In his view, it’s the advocates who are missing the point: that check cashers offer convenience, long hours, personal attention and access to the service that people want most: fast cash.

Like Cousminer, Coleman also sees the pilot as a test of what could become an entirely new way of delivering financial services in poor neighborhoods, where credit unions and check cashers pair up in a retail-wholesale relationship to give customers good prices, convenience and a much wider range of financial services.

“The only thing that makes [the partnership] controversial is this unexamined prejudice we’ve been living with–that we are these greedy guys in the poor neighborhoods gouging the poor,” he says heatedly. “What it is, is a successful business model for delivering financial services in low-income communities.”

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Clearly, the concept makes a lot of people uneasy. “One the one hand, it sounds like a good thing for the people who use them,” says Tracy Shelton, a staff attorney for the New York Public Interest Research Group who focuses on banking issues. “On the other hand, I’d hate to legitimize check cashing establishments, which traditionally have preyed upon consumers, especially in low-income communities.” But, in part because of Cousminer’s stellar reputation, even the most vehement critics of check cashing admit that the partnership may succeed at making the best of a bad situation.

The project also has its supporters. “It’s a double-edged sword the check cashers want to improve their image, and it allows credit unions, who can’t offer the conveniences of banks, to have a presence in the neighborhood,” says Jose De la Cruz, treasurer/manager of the Homesteaders Federal Credit Union. “I think it’s a good initiative.” De la Cruz has been preparing to open a branch office for more than a year, which he says will cost more than $400,000 to launch, and he says the plan seems to present a reasonable way for a credit union to reach more customers at a bargain price. For the check cashers, he adds, “it may not be more than a p.r. initiative, but if members can benefit, I don’t care.”

Coleman and Cousminer hope to get the system up and running in February, and Cousminer estimates that it will take about a year in order to tell if this pilot is really going to be a success. In any case, both Cousminer and Coleman are completely confident that this bold bipartisan experiment is worth trying out.

“If it wasn’t Joy Cousminer, I’d be very worried,” says Errol Louis, a cofounder of the Central Brooklyn Federal Credit Union. “But he might find himself changing more than she will. He might want to change his charter and turn into a depository institution that helps poor people. She’s a very persuasive lady.”