WASHINGTON - The list of large banking companies severing accounts with money-services firms continues to grow, despite government pleas not to do so.
SunTrust Banks Inc. is the latest company to decide such businesses are not worth the regulatory risk. The Atlanta company began sending letters last month to customers informing them that the accounts would be closed within 30 days.
Many other large institutions, including Bank of America Corp., JPMorgan Chase & Co., and AmSouth Bancorp, have dropped most of their money-services customers within the past two years. They have done so despite regulatory promises to address the situation and supervisory guidance last year that urged banks not to sever contact with all money-services businesses.
Industry representatives said that examiners in the field continue to scrutinize banks' money-services customers to ensure that they are complying with anti-laundering rules. Many bankers have decided that keeping those customers is not worth the added cost of monitoring such businesses.
"The real heart of the problem stems from a question of undue regulatory pressure on the banks that service check cashers and other MSBs," said Scott McClain, the compliance specialist and deputy general counsel for the Financial Service Centers of America, a trade group representing about 7,000 check cashers.
"The examiners, often with a wink and a nod, tell bankers that they are better off canceling the accounts rather than doing customer identification due diligence," said Ezra Levine, the counsel for the Money Services Round Table, which represents national money transmitters such as First Data Corp.'s Western Union and MoneyGram International Inc.
Since 2000, hundreds of banking companies have ended relationships with businesses such as check cashers and wire transmitters. For example, Citigroup Inc. stopped servicing check cashers in 2001, and Regions Financial Corp. dropped its money-transmitter customers last year.
A spokesman for PNC Financial Services Group Inc. said Friday it also has closed its money-services accounts, but it would not specify when it did so.
Charles Turnbaugh, Maryland's commissioner of financial regulation, said, "There still continues to be a reluctance - especially in regard, it appears, to large banks - concerning servicing these money-services businesses, because of a perceived risk - regulatory risk.
"Several major banks that should have been ready and willing and able to handle money-services business decided to just not service that segment of the industry. … When a large bank vigorously culls its portfolio of MSB customers, it has a very big impact," he said.
The decisions have left money-services businesses with increasingly fewer places to turn for banking services, and Treasury Secretary John Snow, among many others, has said that the closures are hurting many legitimate businesses.
The problem has caught the attention of lawmakers. Rep. Spencer Bachus, R-Ala., the chairman of the House Financial Services' financial institutions subcommittee, is expected to hold a hearing on June 21 about the issue.
Regulators say they have already taken steps to turn the tide. Officials deny there is a concerted effort to get bankers to drop money-services accounts, and regulators released interagency guidance last year that explicitly said that not all such accounts present the same amount of regulatory risk, urging against blanket closures. But the guidance apparently did little to stem the problem and may have helped exacerbate it.
In letters to the Financial Crimes Enforcement Network made public last month, several banking companies urged the agencies to withdraw the guidance, arguing that they have compounded the problem by saying that some of the businesses are high-risk.
SunTrust said it had little choice but to sever the accounts.
The "decision was based on an increased risk associated with those customers and the increased regulatory requirements and due diligence needed," said Mike McCoy, a spokesman for the company.
In a May 26 letter obtained by American Banker to a money-services business, Mark Barker, the executive vice president of retail administration for SunTrust, wrote, "The decision is not a reflection on any particular company, but rather was a difficult business decision that we found necessary due to the expenses associated with the servicing and monitoring required for these types of accounts."
The letter also said that SunTrust would cut off the company's check card in 10 days.
In addition to closing the accounts, SunTrust is scaling back money-services activities in other areas. When it acquired National Bank of Commerce of Memphis two years ago, SunTrust inherited a 19% stake in Nuestra Tarjeta de Servicios Inc., whose El Banco de Nuestra Communida targets Latino immigrants by emphasizing a suite of MSB-type services. But last month NTS announced plans to move its check-cashing customers from SunTrust to National Bank of Gainesville.
SunTrust would not say how many money-services accounts it is closing, but observers said the move shuts off another big-bank option for the abundance of check cashers and money-services businesses in the Southeast where SunTrust operates.
For example, with 171 branches, SunTrust has the second-biggest banking operation in Maryland, a state with nearly 500 licensed check cashers and 74 licensed money transmitters, according to Mr. Turnbaugh. Maryland's financial regulator receives regular complaints from money transmitters and check cashers about account closures and difficulties finding a bank. Recent complaints have focused on SunTrust's exit.
Officials in New York and Florida are also concerned. Two banks - Banco Popular North America and North Fork Bank - service 87% of the 213 licensed check cashers in New York, according to the state's banking department. Two other institutions - Bank of America and Commerce Bancorp Inc. of Cherry Hill, N.J. - service more than 40% of the 72 licensed money transmitters in the state.
If any of those financial companies were to quit the business, it could be a problem, said Diana Taylor, the state's banking superintendent.
"Preliminary indications are that these two banks are considering exiting the money-transmitter servicing business," she wrote in a recent comment letter to Fincen on the topic. "Clearly the exit of the few major institutions currently servicing the money-transmitter and check-cashing industries would present a significant challenge to the future of MSBs."
Banco Popular North America said it has no plans to quit the check-cashing business and continues to try to expand it.
"I'm a big fan of bank discontinuance; every time it happens, I get more business," said Michael Lynch, the vice president and manager of Banco Popular's money-services business division.
The bank has increased its number of check-casher customers to 650, from 120 in 2002, and generated a $200 million loan portfolio and eight-figure fee income from cultivating check-cashing customers, he said. Mr. Lynch dismisses the idea that the businesses are difficult to monitor.
"They are relatively easy to monitor. They have to deposit everything in their account. All of the information is available as long as you know what to look for," he said.
North Fork, which is being bought by Capital One Financial Corp., did not say whether it planned to close the accounts.
The lack of banking options is mirrored in Florida, where Banco Popular and First Southern Bank of Boca Raton service the majority of the state's 980 licensed money-services businesses, according to Corey Mathews, the executive director of the Financial Service Centers of Florida, a trade group for the businesses.
