Superintendent Taylor Addresses Members of the Financial Services Centers at the Check Cashers Association of New York's 12th Annual Conference and Vendors Show, Stresses the Important Services Check Cashers Provide to New Yorkers

May 11, 2004

Good afternoon. Thank you for inviting me to your Association meeting.
I was surprised to learn that I am the first Superintendent in recent memory to address this group. In fact, no one at the Banking Department can remember the last time it happened.

I can’t imagine why that is – after all, you provide such a hugely important service to such a large, segment of our society. And, the check cashing industry itself is an important part of our economy in this City, employing more than 4,000 people.

I know that Deputy Superintendent Fazio touched on some issues of mutual interest earlier in the day – but I can’t resist going over a little of this old ground as he did bring you some good news. And, I am supposed to be the person bringing you good news, I am the Superintendent after all.

I’m talking, of course, about check cashing fees, which will be raised to 1.5% and the minimum charge for cashing a check, which will go from 60 cents to $1.00. I’m just waiting for the papers to get to my desk and it will be done, hopefully in the next week. But only if you are really nice to me, and don’t ask me any hard questions today.

But seriously, I want to commend this Association for wonderful public service in the scholarship program you run. Giving New York City High School students a push toward college is a great thing to do. I salute you for that. Good work!

I have been the Banking Superintendent for almost a year now, (time flies!!!) And I think that we are off to a good start and working well together – I want to do whatever I can to keep us sailing smoothly ahead – despite the fact that of late the waters have been a bit choppy.

Certainly in recent years, your business has become increasingly complex as laws, such as the USA Patriot Act, have tightened and expanded reporting requirements.

This has brought on its own set of challenges for your industry – including – in some cases – a more awkward relationship with banks. I don’t want to dwell on this right now, but I recognize it is something that we, you the industry, and we, the supervisors, need to talk about.

There’s a saying of uncertain origin that importunes the listener to "live in interesting times." It doesn’t matter who said it first, it’s meant to be ironic. And, guess what? These are interesting times. The last time I had such an interesting time was when I was in College. And I certainly don’t want to relive that, but my interesting times in College couldn’t hold a candle to the interesting times that confront us now.

I must say, you have my appreciation for the way the check cashing industry has come together to reassure the public and to assist my department in dealing with the CashPoint situation. More on CashPoint later. This is a situation that I know has caused you concern and which has rippled through your businesses. But first, I want to talk more specifically about how I see this department in its interactions with you, the check cashers we license.

I chose the word interaction with care. I have a simple request of everyone in this room, because we all have the same goal: winning and deserving the confidence of the consumer. If we share this goal, then we must all understand that we each have a role to play. I have no desire to sound overly simplistic – but what I am proposing is simple. You, in the industry, must help to police yourselves.

If you see something wrong, or you hear of an unwise or illegal business practice, tell us. As much as we have a responsibility to you to make sure that problems are solved before they metastasize into something toxic, you have a responsibility to each other and to yourselves to keep your increasingly complex business on the straight and narrow.

To the extent consumers lose money because of the misdeeds of one company, it reflects badly on the industry as a whole. For example - – the thing that is on most of our minds these days: many of you have a relationship with a money transmitter. If you start to hear that payments are late, let us know about it. Enough said.

A great deal of time and talk in the financial industry centers on the safety and soundness of our financial institutions and our duty as supervisors and regulators to protect the public from the bad actors. As we have seen, bad actors come in all shapes and sizes and business models. Still, much of the emphasis has been traditionally on the big commercial institutions – the banks. This is as it should be, since our large financial institutions are often at the center of complex transactions and international deals that are fraught with multiple risks. Having said that, since I took the helm here nearly a year ago, I have been concerned with the way we actually carry out our business of supervising, regulating and licensing institutions large and small.

It should mean something to be regulated by the New York State Banking Department. I have found as time goes on, that I have more and more questions about how we interact with the industries that are not historically included in the "safety and soundness" category, but which are in fact integral to the safety and soundness of our financial industry. These include check cashing, money transmitting, budget planning, mortgage banking. These are the industries which interact in very fundamental ways with consumers.

Let me set the stage. Some time ago, I took a look at New York State’s banking law and at those statutes that would constitute our mission as a department. I was curious about what the law had to say about it and what words they used. I found that our banking law, in the intent section, included language about the dangers of hoarding money. Anyone with a smattering of knowledge in American History would know that money hoarding was a real problem - - back in the 1930s. I would submit that the least of our problems today has to do with money hoarding!

Put succinctly, our mission does not match our mission statement! Times and technology have changed the world we operate in. Frankly, hoarding money is about as far down as it could be at the bottom of the list of what we consider our risks to be today.

In the big picture, we’re concerned with the trillions of dollars of derivatives, BSA issues, new Patriot Act regulations since 9/11 and scams designed to separate people from their hard-earned cash. When these things happen on a global scale, they garner global attention. But as the CashPoint case clearly illustrates, we have huge risk factors on the local horizon.

I think we do a fine job, along with our fellow regulators, on looking after our banks. The things that keep me up at night are not problems with safety and soundness in the banking industry.

The stuff that keeps me tossing and turning has to do with what’s going on in our own back yard. This gets back to the sort of risk that I feel we have been discounting and which has the ability to do real harm to our most vulnerable citizens.

As I said before, your industry serves a huge and important need. You know that – I know that. The issues I have directed the department to focus on include the risk inherent in serving such a large, and often poorly represented and less understood segment of our economy.

I want to be very certain that their interests are protected, their concerns are addressed and their money is safeguarded. I know that is your goal too.

Customers who are knowledgeable and who feel confident in using the system are good customers. But when a CashPoint happens, it drives home the point that with regard to watching over our own, we can always do better. I’ve been disturbed that even within the banking Department, Licensed Financial Services has had something of a step-child status.

In part this has been due to a perception that the business risks inherent in those entities are not as great or on an order of magnitude that approaches those involved in say, the regulating of the US Financial Services industry or the Foreign Financial sector where we are dealing with huge institutions such as JP Morgan, Bank of New York and Deutsche Bank.

But this perception is just not true. And I am committed to bringing about a change in this perception. Because I have found that the status quo is unacceptable, just about every internal change I have made to the Department since I arrived, including rotations of examiner staff, promotions, and staffing level decisions have been driven in part to elevate the visibility, position and status of Licensed Financial Services.

This is important to me because it is important to consumers, who often have nowhere else to turn for their financial needs. You provide good service to them in a professional respectful way. We at the Banking Department need to be sure that we do the same for you.

So what are we changing?
To start with, I’ve directed staff to undertake a complete review of our examination process as well as the laws and regulations governing money transmitters and check cashers in New York State. I mentioned the staffing levels and changes that I have already put in place. But you will notice some other changes in the not too distant future. I’m concerned, for example, that the examination process is not as rigorous or frequent as it should be.

I talked about risk earlier: I think it is risky to bind our examiners’ interactions with you to an 18-month cycle. We are looking at this timing and at what kind of interim exams we could do to help us all stay on the straight and narrow. It hurts everyone, reputationally or actually, when something goes wrong within the industry. Consumers lose confidence, become justifiably angry. Banks lose their trust and a cog in the New York financial machine slips. This is what we need to and can protect against. We are in a place where we can make the system work better for everyone and this is the time to make those changes.

There is so much we can do on this front with regard to reviewing our internal policies and procedures, looking at what we examine for, what we license, how we issue licenses, what we charge for licenses. The important thing to note at this juncture is that we are not going to do this in a vacuum. As we move forward with this review – which, by the way has already begun, I will be coming back to work with you on changes we will make.

I promise you this – you may not like everything we do, but you will be happy with some of it and none of it will catch you by surprise. And be assured, it is all designed to make the industry stronger.

One thing I want to mention here, which you will be hearing more about in the coming months, is a challenge we are facing at the banking department, which has to do with how we are funded. Currently, you are charged fees and penalties, but those monies go directly to the State general fund. We do not see a penny. Our work with you is totally subsidized by assessments we charge the depository institutions we regulate. This is not healthy. 10% of our institutions pay for 100% of our operating budget. Not a good business model, especially when some of the larger depository institutions are thinking of changing their charters from state to federal, and some already have.

The financial services industry is facing many changes, caused by new technology, new laws, increasing consumer demands, new products, competition. We as regulators must change with it, and we will be working with you make sure that what we do and the amount we charge is fair.

Now, I said I would get to CashPoint. >From our end, we continue to work with our partners in law enforcement and in government to pursue the investigation into how much money is missing and where it may have ended up and to work with creditors to ensure that consumers are dealt with fairly and not punished for CashPoint’s failings.

Depending on the type of creditor, this is sometimes an uphill battle to say the least.
CashPoint was licensed on May 1, 1996 as a money transmitter under Article XIII-B of the New York Banking Law. The Company, owned by Bernard and Samuel Brevdah, with each owning 50% of the licensee, provided bill payment services through a network of approximately 700 agents throughout New York State.

Almost 500 such agent locations in NYS are licensed check cashers. I am sure that many of you in this room were Agents for Cashpoint.

You know that some of the utilities, companies and government agencies that CashPoint accepted payments for included Con Edison, Verizon, Cablevision, Keyspan and the Housing Authority of the City of New York. In addition, CashPoint had a contract with the City of New York to cash payroll checks for City employees.

So when did things begin to go wrong?
This is what I can say publicly: A bank issued an alert regarding the company and we heard that utility bills were not paid. We immediately contacted the licensee and insisted that it come in for a meeting that day—April 21, 2004. At the end of that meeting, the Department suspended the money transmitter license of CashPoint. Examiners were sent to the office of CashPoint to determine the extent of the problem and to attempt to ensure that no funds were dissipated or records destroyed.

The Department also issued an Order preventing CashPoint from transferring or appropriating any funds or assets and on April 22, 2004, a group of creditors filed a petition under Chapter 7 of the Bankruptcy Code in the Bankruptcy Court for the Southern District of New York.

Early figures indicated that approximately $75 million dollars are unaccounted for in New York at this time. In addition, between $10 and $20 million is owed to a New York bank.

Pennsylvania, Rhode Island, Maryland and Connecticut have also suspended the company’s license and New Jersey, Ohio and Florida are seeking license suspensions. CashPoint voluntarily suspended its business in Maine.

In addition to CashPoint, Samuel and Bernard Brevdah also are co-owners of two check cashers—Uribea Realty Corp and Bronx Check Cashing. In part because of the common ownership of the check cashers and CashPoint we also moved to suspend those licenses.

Our primary goal now is to ensure that we know the facts as completely as possible and that to the extent possible, consumers are made whole through the State Transmitter of Money Insurance Fund and bonds that CashPoint was required to post in the course of doing business. We are assisting the Bankruptcy Trustee by sharing information so that the bankruptcy process can be as fast and effective as possible and we are cooperating with law enforcement officials who are investigating the matter further.

There are many unanswered questions right now, but we intend to quickly find answers to what went wrong and to fix any problems.

We do live in interesting times, but that doesn’t mean that all that grabs our attention is necessarily bad, or bad luck.

So I pass on to you this wish – may you live in interesting times that bring expansion, better products, bigger opportunities and safety and soundness for your industry and your customers too.

Now, I am looking forward to taking your questions. I may even answer some of them!

#  #  #