The new caps took effect in January, following a public comment period. The rule won support from a coalition of neighborhood nonprofits, good-government groups and banks. The coalition, led by Consumer Reports, agreed that the state should adopt the policy.
“Many users of check-cashing services are unfairly burdened by financial fees that eat away at their limited incomes,” the coalition wrote in a September letter to DFS.
The check-cashing industry pushed just as hard against it, commissioning a report by the accounting firm Ernst & Young that concluded that New York should raise fees to 2.53% to give check cashers the same profitability levels they enjoy in neighboring states.
The new rules hit check cashers at the worst possible time, they argue. Statewide, the number of check-cashing stores fell by 21% from 2010 to 2019, declining to 540 total locations, according to the Ernst & Young report. The total dollar volume of checks fell by about 30% in that span—a drop driven partly by the decline of paper checks and the rise of direct deposit and online bill-paying.
Check cashers who signed onto the lawsuit say the new regulations have already had an impact. RiteCheck, a family-owned firm that runs 13 stores in Harlem and the Bronx, estimates the caps will cost the firm $200,000 in annual revenue. The small chain David’s Check Cashing puts its annual losses at up to $660,000, saying the cap caused the company to drop below profitability.
Siegel said his company, Check Changers, has closed three of its six locations since last year and had to forego an employee pay raise, due in part to the new rule.
Responding to consumer criticism, Siegel said his stores do more than charge fees for checks. Many have expanded their offerings in recent years, helping New Yorkers make rent payments or send money to relatives.
“No one’s forcing you to use a check-cashing service. They use our services because they like our extended hours, that we’re open late, that we speak the language,” he said. “Our fees are upfront. At a bank, you don’t know what you’re paying till you get your statement.”
State regulators have not shown much sympathy for check cashers’ pleas. In a response to public comments on the proposed caps, DFS shot back that “it is not the job of the department to ensure that any industry is profitable.”
The state also accused check cashers of being overly dramatic in their reaction to an 0.07% drop in their fees. By contrast, regulators noted, the larger inflation-adjusted increase from 2.27 to 2.37% that would have occurred this year under the old policy was dismissed by check cashers as “negligible” to consumers.
The department declined to comment on the lawsuit Friday.
Industry groups have had some success challenging DFS rules in the past. In 2018 a state judge struck down a regulation that prevented title insurance companies from passing entertainment and marketing fees on to customers in the form of fees—holding that state legislators, not regulators, would need to implement such a change.