Federal Bill Would Set Up New Loan Companies


Alternative financial institutions may apply for federal charters if a bi-partisan bill gains momentum.
Reps. Joe Baca, a California Democrat, and Blaine Luetkemeyer, a Missouri Republican, are sponsoring HR 6139, which would “create a Federal charter for National Consumer Credit Corporations, and for other purposes.” The bill, also known as “The Consumer Credit Access, Innovation and Modernization Act” was introduced on July 18.
Essentially, the bill would grant federal charters to alternative financial institutions.
Industry reaction to the bill has been mixed. The Online Lenders Alliance supports the measure, while the Community Financial Services Association and the Financial Service Centers of America are staying neutral.
“A federal charter, as opposed to the current conflicting state regulatory schemes, will establish one clear set of rules for lenders to follow. This will lead to the creation of innovative financial products for consumers demanding them,” says Lisa McGreevy, OLA president and CEO.
“CFSA, the storefront payday lenders association, does not advocate for this legislation since it does not include our products,” CFSA says in a statement. “Our member companies have long operated in a highly regulated environment — at both the state and federal level. Such regulation is effective, balancing credit availability and consumer protection. While we generally support innovative efforts like this to extend credit options to more hardworking Americans, this bill does not include the payday loan product offered by CFSA members and we are not working for its passage.”
“FiSCA is officially neutral on H.R. 6139, the Consumer Credit Access, Innovation, and Modernization Act,” says William Sellery, executive director of FiSCA. “We have not and are unlikely to be taking a position on this legislation.”
A CFSA spokesperson noted that the bill doesn’t cover institutions that offer loans for less than 30 days. Most payday loans are for a two-week period.

Backed by Cash America

A strong supporter of the legislation is Cash America, which believes HR 6139 will level the online playing field.
“On the Internet, you have a tremendous amount of competition that does not play by the rules that we do,” Mary Jackson, a senior vice president at Cash America, says in a published report, adding that regulations on the state level are “a competitive noose.”
The Ft. Worth, Texas-based company also has been ramping up its contributions to its political action committee. According to a published report, Cash America’s PAC is on pace to double its annual campaign contributions from the $200,000 it gave in 2007.
Even more interesting is that the proposed regulator of the credit corporations believes the bill would do more harm than good.
Concerns were expressed at a July 24 hearing on the legislation by Grovetta Gardineer, deputy comptroller for compliance policy office of the Comptroller of the Currency.

The Ownership Model Has Changed, Too


In The Model Has Changed, I focused on the need to adjust to the shifting sands of the industry’s business and economic models. There was such a great response to that article that I proposed and chaired workshops under the same name at Financial Service Centers of America, and again at the Financial Service Centers of New York annual meeting.
Those workshops ended up morphing into a much broader discussion, dealing not only with the business and economic models, but delving deeply into the changing ownership model as well.
Through that came my recognition that unless you adapt to changes in all three models — business, economic and ownership — you are sitting on a stool that is about to tip over.
This article provides some of the highlights and insights of the ownership model discussions from those workshops.
What exactly is the “changing ownership model?” Well, it starts with a state of mind and ends with a modified behavior pattern that is built for success. The problem is, it ain’t easy. In fact, it requires the most effort of all three models.
You have to be ready to deal with issues such as self-evaluation, behavioral changes, personal life changes, lifestyle shifts, changes in daily living, revisiting business relationships and plans, achieving personal balance, attitude improvement, honesty and directness between business partners, and a general adjustment to the “New Normal,” to name a few.

The New Normal

Except for a select few of us, our grandparents did not grow up driving a Cadillac (or whatever the American equivalent of a Mercedes or BMW was at the time).
Being older than many of you, my grandparents grew up in eastern Europe in the 1880s, and my parents grew up in New York during The Great Depression of the 1930s — riding the subway.
In this day of the “New Normal,” their childhood experiences and the life lessons they taught at home turned out to be a real advantage for me. Those lessons made it easier for me to achieve a balance in my life between what I want and what I need.
Whether you were raised by Depression Era parents or not, you have no choice but to adjust to the New Normal.
The New Normal includes dialing back ostentatious consumption, and instituting a process of making choices — conscious decisions — even in circumstances where your ability to bear the monetary cost of that decision is not an issue.
For help in finding your New Normal, I highly recommend reading The Millionaire Next Door because the New Normal will be around for the foreseeable future.

A Small Word: “No”

Even if your first car was a BMW, you need to come to grips with today’s reality. Here’s the first lesson: Learn to say “no.” Sure, “yes” is almost always easier at the moment — until the bill arrives.
And that bill is not always paid in dollars. Sometimes, it is the loss of your business time or your free time. Sometimes, it involves loss of morals, principles and reputation. Sometimes, you pay in stress and sleepless nights. So I suggest that you get comfortable with the word “no.”
That’s not just saying “no” to your kids or your spouse; it’s “no” to yourself and your wants; “no” to questionable business practices, “no” to demanding more from your business than it can give, “no” to checks you know are way too risky, “no” to long lunches at expensive restaurants, and “no” to the lifestyle, to name a few.
How can you say “no” to your kid’s “need” for a new iPad? The “need” for a new car before the lease expires? The “need” for that extra vacation that you just have to take or you’ll go crazy? The “need” for dinner out three nights a week?
Practice in the mirror: “No,” “no,” “no.”
Aside from the obvious — managing some deflated expectations — what you will get back is empowerment, freedom and a sudden flexibility.

And “Good Morning”

Your employees are a direct reflection of you. If you come in angry, aggressive, or negative, that is exactly how your employees will treat your customers. If you walk through the door positive and upbeat, regardless of the challenges you expect, they will be positive and upbeat.
If you come in expecting results without a business plan (and involving your employees in implementing that plan), you will be disappointed.
In short, you need to start every day with a positive outlook, with a plan for the day and for the business, accept and adjust to the day’s events, and stop being surprised by reality and using it as an excuse for a bad attitude and lack of planning.

Resetting Partnerships

Time and again, I am asked by owners, “What’s wrong with my business?” All too often it is a question of simple math.
In multi-generational operations, the math can get even more fuzzy. For example, take Dad, who always drew $300k from the business each year, plus perks. Dad brings in his older son (Son No. 1) to run the business. Dad says to Son No. 1, “You can pay yourself $125k.” Dad also asks his younger son (Son No. 2) to come in to the business. Son No. 2 doesn’t much like working every day, but still wants $75k to hang around.
With all of the business and economic changes of the past few years, the business only generates, at most, $400k. The problem is, dad still wants his $300k (plus perks)! (Hint: $300k + $125k + $75k + $Perks = $500k + $Perks, which is way more than $400k)
You know where this is going. Playing cash flow games, drawing on credit lines, inadequate liquidity and net worth, loss of bank and vendor relationships and worse. Math like this is delusional and unsustainable.
If all of them (Dad, Son No. 1 and Son No. 2) are to stay in the business (and perhaps they cannot), the partnership must be reset.
That means honest and direct conversation and analysis. What the business can and cannot afford. What each party’s effort needs to be, what effort each party is willing to commit, and what that effort is worth in the marketplace. What money needs to be left in the business to maintain adequate net worth, provide working capital, support banking and vendor relationships, and provide an operational safety net.
The same analysis applies even if you are a one-person-owned operation.

Happiness Leads to Success

Most people believe that the key to personal happiness is business success. They live and work for years in a perpetual state of unhappiness on the theory that some day they will be successful, and therefore suddenly become happy. That can happen — in the movies.
In the real world, especially when you own your own business, it works the other way. The key to business success is personal happiness. Living a life in balance and accepting the reality of how things are while embracing change in order to move forward.
If you work on improving your personal happiness every day, your family, business partners, employees and customers will sense it, your energy, focus and ability to manage and cope will dramatically increase, and the doors to business success will open.

Richard Kelsky is president of TellerMetrix, a provider of POS transaction, compliance, interface, electronic deposit and marketing software to check cashers, payday lenders and retail banks. He is also a New York and Connecticut Bar member, a Polytechnic Institute of NYU and NY Law School grad, a Certified Anti-Money Laundering Specialist and a frequent lecturer on business, legal, compliance, and technology issues. He can be reached at rkelsky@tellermetrix.com

How Safe is Your Safe (Part 2)



Just how safe is your safe? In the Spring 2012 issue of Cheklist, we took a look at state-of-the-art safes vs. outdated ones, placement of safes, the negative sides of modern technology, and how burglars may gain access to your safe. We also examined safecracking, and detailed non-destructive methods of breaking open a safe.
In this issue, we pick up with the more destructive ways criminals may attack your safe.

Destructive Safecracking Methods

For years, drilling was the most popular method of destructive safe attack. In drilling, a single hole or multiple holes are drilled into the safe’s locking mechanism or face in order to destroy the locking bolt or lock cylinder which would then allow the handle to be turned retracting the bolts.
The first safes were made from metal. The first safecrackers simply drilled them using a drill bit made of a harder metal.
Safe makers then started using really hard metal — a “hardplate.” Eventually, manufacturers settled on cobalt plating, particularly right around the dial and the mechanisms that stop the lock bolt from moving. So the safecrackers started using diamond-tipped drill bits that will eventually drill through cobalt, although the drill motor may burn out first.
In response, the safe makers started using tricks like this: They make a hardplate of a cobalt-vanadium alloy and sprinkle it with tungsten carbide chips, which can shatter the diamond-tipped drill bits.
It was a cat-and-mouse scenario.
Long gone are the old shoulder-brace drills. They’ve have been replaced by portable magnetic drills. You can be sure that the burglar will come with special tungsten-carbide, titanium or diamond drill bits to get through hardened steel or composite materials.
Nowadays safecrackers use only three types of drill bits:
1. High speed drill bits for just drilling metal
2. Carbide drill bits for drilling harden steel
3. Diamond core bits for drilling carbide chips embedded hardplate
So the safe makers started adding other layers of material besides the cobalt, like spongy stuff or angled soft-steel plates in concrete to tangle drill bits instead of stopping them cold.
They also came up with the concept of “relockers.” Typically, if you trigger the relocker, a new set of bolts spring into place.
The trigger mechanism in some cases is a glass panel which holds a relocking mechanism in place. If the hole is drilled in the wrong area, the glass panel will break, triggering the relockers. If the drill or any other impact tool strikes and breaks this glass panel, the burglar will never get the door open.
Relocking devices were first fitted to safes in the 1950s to prevent safe doors from being opened through the use of explosives. Originally, steel cables were routed around the inside of a safe’s door and connected to a lever that would release a second set of bolts that block the retraction of the main locking bolts in case of a forced breach. The cable was held in place by a piece of hardened glass. Any explosion would shatter the glass, causing the additional boltwork to be activated.
Changes in design led to using a larger plate of glass that covers the entire inside of the safe’s door, which can still be broken by explosives, but also by drilling or impact.
Now keep in mind, a true safecracker will know something about the safe that he is planning on attacking. He will know of the burglary countermeasures the manufacturer has put in place; about the relockers, reinforced areas around the lock itself and where the points of least resistance are located.
Manufactures publish drill-point diagrams for their safes and although highly protective of this information, it is available to locksmiths and has been known to be leaked. This could allow the safecracker to drill from a steep angle above the lock and then drill into it.
The objective here is to not destroy the wheel pack, but to be able to look inside it. Once the safecracker can see inside the wheel pack, he can watch the wheels spin as he turns the dial to line them up to open the door.
This is also where a borescope or other electronic viewing devices, like fiber optics, come into play. Fiber optics brought a tremendous advancement in the ability to manipulate combination locks from outside the safe.
Today, for example, a digital inspection camera is available at Harbor Freight for $80. It has a 38-in. long flexible shaft, a 2.4-in. color LCD display and two white LED lamps for low light viewing.
Again, to combat frontal drilling, the safe manufacturing industry now incorporates hardplate steel or composite hardplate steel (a casting of metal such as cobalt-vanadium with embedded tungsten-carbide chips designed to shatter the cutting tip of drill bits) in high security safes.
If relockers and hardplate are installed in the door of the safe, another drilling option would be the side of the safe. Side drilling is a method used to reach the bolt itself. Again, the safecracker would use a borescope or similar tool to view the bolt inside the lock and then use a long punch to push it out of the way or destroy it.
Safes may also be drilled from the rear. This method is often easier than an attack from the front, especially if the safe is not an X6 model (an X6 designation indicates all six walls
of the safe provide the same level of protection).

Impact is a method of attack where a safe may be dropped from sufficient height to cause enough damage to the exterior that the door may be pried open.
Other forms of impact would be to knock off the combination lock dial and then drive the spindle and wheel pack into the safe with a large punch. A default relocking mechanism on a modern safe may defeat this method.

In peeling, an axe and/or a hammer and chisel are used to breach the external layer of material of a safe and a large crowbar type tool is used to peel away the protective outer covering.
This was a very common method of breaching older safes with an outer layer of protective material.
Although this may be a time- and labor-intensive endeavor, remember, even a TRTL-60X6 safe is only rated for a 60-minute attack.

Prying is very similar to peeling. The same tools are used, but instead of peeling off the protective outer covering, this method involves tearing open the safe or prying off the door or sides.
This method is also very time- and labor-intensive, but may have better results than peeling.

Cutting is by far the most popular method for successful safe attacks by professional burglars. Cutting may include grinding, sawing or use of a cutting torch.
a. Cutting with hand tools
A common handheld electric saw or electric high-speed angle grinder fitted with a modern cutting blade or disc will inch its way through the hardest materials, including concrete.
These tools are readily available, easily transported and not too expensive. If you deal in tools at your pawnshop, you frequently see saws and grinders fitted with fiber or diamond cutting blades or discs that are being used to cut both concrete and metal. In my mind, these would be the ideal tool for a safe attack.
Also, using a disc cutter, unlike a torch, doesn’t require much skill.
Since we’re talking about cutting, rather than chopping with an axe, the burglars may just cut through the roof with a battery-operated saw. Roofs and roofing material are not as hard as a composite safe body.
Cut, not burn — one of the last things a burglar may want to do is set fire to the cash or melt the gold in a safe. Locked doors and a secure-looking building may cause the police to turn away. The fire department has its own attitude and usually the persuasiveness to show a door who’s boss.
b. Cutting with torches
All metals and composites burn at certain temperatures. Cutting with a torch of some kind is a very efficient method to access the contents of a safe.
Torch attacks, like many other cutting method attacks, are often performed on the side or back of the safe. This avoids the relocking mechanisms in the door. However, it is not uncommon to have a combination lock wheel pack cut out of a safe door.
Oxy-acetylene torches have been the torch of choice in the past. They can operate at temperatures up to 4,500°F, and are still the most used torch for gaining access to a safe.
But today a portable plasma cutter is often taking its place. While some models will work on 120 volts, there are also portable devices that will convert common 120 volts found in all businesses to 240 volts for use with heavier, more powerful, but still portable plasma torches.
Both these torches are capable of creating enough heat to burn through a large safe or vault. The downside is the amount of smoke and heat generated.
To combat torching, safe manufacturers often include a layer of high-strength concrete in between the inner and outer layers of the safe shell. So the reactive safecrackers had to move on to the next level as well: the thermic lance.
A thermic lance is typically a hollow fuel rod with a high-pressure oxygen source in the center used to burn through anything that gets in its way. However, they are very messy, loud, emit a lot of light and often burn up everything in a safe. There is also the possibility of burning down the entire building.
A thermic lance, thermal lance, oxygen lance or burning bar is a tool that burns iron in the presence of pressurized oxygen to create very high temperatures for cutting. It consists of a long iron tube packed with iron rods, sometimes mixed with aluminum or magnesium rods to increase the heat output. One end of the tube is placed in a holder and oxygen is fed through the tube.
The far end of the tube is pre-heated and lit by an oxy-acetylene torch. An intense stream of burning iron is produced at the lit end and can be used to cut rapidly through thick materials including steel and concrete.
The tube is consumed, so every few minutes the operator shuts off the oxygen, discards the remaining stub of a lance tube and starts using a new one.
Besides its ability to cut through just about any man-made or metal material, the thermic lance will also burn through, or melt, concrete.
And while a thermic lance requires a large amount of oxygen to operate, I remember reading a little while back where one was used to cut into a bank vault from an exterior wall in a parking garage over a weekend.
The thieves merely draped off the area of attack to look like a construction job was being performed in the garage itself (not too uncommon over a weekend) and then proceeded to cut into the vault.
The use of torches does, however, requires a skill level that can’t be learned on the job. Still, there are lots of employed and unemployed construction and demolition workers, trained military personnel, factory workers and a host of others who possess the necessary skills already.
One possible exception to the old TL-30 standard may be the Roland Pawn Safe. This system affords an additional level of protection against armed robbery through its built-in electronic time-delayed drawer system, which is enclosed in an additional steel shell inside the safe.
Even if breached by a cutting disc or a torch, access to its contents is limited to only a small area of the safe, resulting in minimal loss. This goes back to the “safe within a safe” concept.

Explosives are still an option for gaining access to a safe, but are rarely used today. Although this method may be very successful, it is not very discreet. Even if used to destroy a lock, bolt or hinge, the results would also likely activate any relocking mechanism. There is also the likelihood of alerting someone (by way of the explosion) and personal injury.
The burglar must also possess the knowledge that the safe’s contents will survive the forthcoming explosion.
The method of choice to blow a door off a safe is a “jam shot,” which gets its name from a highly explosive mixture of nitroglycerin [C3H5(NON2)3] (glycerin, nitric and sulfuric acids) that takes the form of a jelly-like substance. I’m not going into all the details of how to prepare and execute a jam shot, but it is not that difficult.
For a true professional with more connections in the explosives world, C-4, PETN or RDX may be the choice explosive. The advantage of these compounds is that they are more stable than nitroglycerin and come in a moldable, clay-like form that is ready to use.

The general rule for vault breaching is to never use the door. Always attempt to breach the walls, floor or ceiling. Security precautions are taken with walls, floors and ceilings, but not usually to the extent as with the vault door. Vault doors look big and mean. It is a psychological defense mechanism and works. People feel they are impenetrable.

Transparency? No Problem!


By now, most of you are familiar with the Consumer Financial Protection Bureau. Created with the passage of Dodd-Frank in July 2010, the CFPB is charged with representing the interests of American consumers in connection with financial-related products and services. Its director is Richard Cordray.
I recently attended a Town Hall Meeting called by the CFPB to obtain comments from the public regarding checking accounts.
Where and When
The meeting was held at Hunter College — located at 68th Street and Park Avenue in New York City — at 5:30 p.m. on a Wednesday. Having been raised in New York, my initial reaction was, “Where and when?”
For non-New Yorkers, the area surrounding 68th and Park happens to be one of the most expensive neighborhoods in America. According to Bloomberg News, the median apartment runs north of $2.8 million. If you drove to the meeting, you could spend $45 just to park your car.
It seemed pretty unlikely that an ordinary, individual consumer from Brooklyn — after getting off work at 5 — would make the effort to get there. So you can appreciate my difficulty in seeing this location and the timing of the meeting as geared to drawing attendance by individual consumers desiring to relate their checking account experiences.
On the other side of the coin, I applaud the CFPB’s director for personally getting on the road to meet with consumers. I am also keenly aware that a large percentage of young adults incur overdraft fees, so some student comments on checking accounts would be relevant.
I also recognize the desire to have members of the media attend, as well as consumer groups, for whom a Manhattan location would be convenient.

Who — the Audience

I arrived early, took a seat, and observed. The largest group in the audience was students at Hunter College, followed by representatives of various community service and other organizations, law students, labor representatives and some individual consumers. I also spotted a few bankers. Press attendance was relatively modest.
The Town Hall opened with an introductory program including the president of Hunter College, as well as Rep. Carolyn Maloney, New York State Attorney General Eric T. Schneiderman, and CFPB Director Richard Cordray. After those brief remarks, Cordray and CFPB Assistant Director for Community Affairs Zixta Martinez took their places on stage and the floor was opened for comments.

How — A Well-run Meeting

Cordray and Martinez handled the public session extremely well. They are very smart people: professional, charming, confident and excellent communicators.
In responding to comments, the director exhibited the ability to think on his feet – a rare commodity these days.

What — Audience Comments

The comments from the floor were generally very passionate. Many were delivered by representatives of organizations, rather than individual consumers. Some of those representatives also included an aspect of personal experience in their comments, most commonly relating to overdraft protection, multiple overdraft charges and transaction ordering by banks.
Other comments touched on student loans, bank debit cards, mandatory placement of earnings on cards, prepaid debit cards and payday loans. This was somewhat curious because they are not allowed in New York — although, since payday loans are routinely obtained by New Yorkers over the Internet in an unregulated environment, the comments could reflect on-line experiences. Speakers also addressed the cost of maintaining a checking account, credit checks in connection with retail employment applications, Wal-Mart, and made a couple of comments — not necessarily negative — about check cashing.
Cordray’s answers were measured, responsive, and demonstrated a keen understanding of the CFPB’s mission. It appeared to me that the director is focused on transparency of disclosure. I did not get the feeling that promoting Machiavellian legislation was on the near-term agenda.

Interest Rates vs. APRs, Rollovers

During the course of the meeting, I was concerned about a few references to payday lending “interest rates” (including the use of the term “usury”) and “rollovers.”
Putting aside the numerous state law issues involved, most people discussing payday lending interchangeably refer to APRs as “interest rates” — even though they are materially different terms.
APRs include fees as well as interest rates in the calculation. In addition, it is also generally understood that APRs were intended for comparing longer-term loans (in order to consider the effect of up-front fees over the term of the loan) and as a tool for evaluating loans of comparable duration.
For example, a payday loan of $100, with 0 percent interest (yes, zero percent), a two-week term and the only charge being a fee of $10, would have a calculated APR of more than 260 percent.
Given the combination of short term, amount, risk, and the costs incurred in documenting, issuing and processing the loan (including labor, rent, cost of money, insurance, and all other expenses of running a business), it is simply not appropriate to paint this APR with a broad “interest rate” brush or casually use the term “usury.”
Usury is defined by state law on a state-by-state basis — often including exemptions for particular types of loans. Similarly, in many states, payday loan rollovers (as well as multiple loans) are controlled by state law and loan databases.
It may surprise some readers to learn that while payday loan APRs are fully disclosed, bank overdraft fees have no APR disclosures. That is because it was somehow decided that overdraft protection is not a loan.
What would the effective APR be on a $34 overdraft charge for a $2 cup of coffee — for a five-day term? (Hint: 124,000 percent — yes, one-hundred-twenty-four thousand percent.) How about $34 on that $1 refill for the same 5 days? (Hint: Double it).

Unbiased Transparency

Understandable disclosures are good things, provided that they are intended and written so as to help consumers make informed decisions, not to make decisions for them.
No matter what subject you pick, there are always extreme cases that can make headlines. We issue ten million life-saving prescriptions with “package insert” disclosures stapled to every prescription bag, but the headline we read is about a handful who misused the drug.
Similarly, in virtually every industry, the actions of a few bad apples overshadow the good practices of the overwhelming majority. Disclosures should inform, without bias, thereby allowing the consumer to independently decide.
Successful neighborhood financial service providers have always earned their customers’ business through clearly stated charges and extraordinarily efficient delivery of courteous service, often on an extended hours or 24/7 basis.
In my experience, their customers are extremely aware of all charges and closely examine their receipts and documents.
In one check casher’s comments during the Town Hall meeting, he summed up succinctly that as the operator of a group of check cashing stores in New York, he provides the combination of transparency, level of service, range of services, reasonableness of charges and environment that consumers want.
To that point, one of the commenting community service organization representatives acknowledged that check cashers are less expensive than banks for many consumers.

Educated Free Market Makes Choices

Over the past couple of years, prepaid debit cards went mainstream. Just like smart phones, TVs and cars, different brands have different features and costs.
Much depends on how the individual consumer puts the card to use. While some were calling for more regulation, consumers became more aware and better educated about prepaid cards, what they cost and how they work, and the free market has defined their terms, acceptance and success.
Sure, there are charges – as they say, “there ain’t no such thing as a free lunch” — but now, numerous reports have found more and more consumers opting for prepaid debit cards in lieu of checking accounts, primarily based upon ease of use, certainty of cost, and lack of surprises.
Over time, a more informed consumer has contributed to the industry’s product evolution and mainstream acceptance.
Having visited more than a thousand neighborhood financial service businesses, and having spoken with customers, employees and owners, I am confident that transparency of charges and terms is the industry norm and the level of customer awareness is very high.
Can you imagine a bank posting its charges in its lobby? How about a bank providing each customer with a detailed transaction-by-transaction receipt? Or a bank giving a customer the opportunity to choose from a range of alternative products for the same service?
In neighborhood financial services, that is a part of everyday business.
While many remain concerned, I am optimistic about the CFPB. I am not a fan of business-hampering legislation, or imposing regulation over many for the acts of a few. I am, however, in favor of consumers receiving clear and unbiased disclosures leading to informed, independent choice.
If the CFPB accomplishes that result across the entire financial sector, it is good for everyone — and the free market will dictate the outcome.

Richard Kelsky is president of TellerMetrix, Inc. a provider of POS transaction, compliance, interface, electronic deposit and marketing software to check cashers, payday lenders and retail banks. He is also a New York and Connecticut Bar member, a Polytechnic Institute of NYU and New York Law School grad, a Certified Anti-Money Laundering Specialist and a frequent lecturer on business, legal, compliance, and technology issues. He can be reached at: rkelsky@tellermetrix.com

Check Cashers Triumph in Long Zoning Battle



Although local governments have always enjoyed wide control over zoning matters, that power is not without its limits. Recently, after a town in New York made major changes to its zoning ordinance governing where check cashing businesses could operate, the check cashers sought to have the changes overturned.
On Jan. 10, 2006, the Town of Hempstead adopted Section 302(K) of the town’s Building Zone Ordinance. Section 302(K) prohibited check cashing businesses within the town in any districts other than industrial and light manufacturing.
Under an amortization provision in 302(K), check cashing businesses already operating in districts where such businesses would be prohibited were required to terminate or relocate to industrial or light manufacturing districts within five years.

Suit Filed

A number of check cashers filed suit seeking a judgment declaring, among other things, that Section 302(K) was void and of no effect, that Section 302(K) was preempted by state law, that it was not a valid exercise of the town’s zoning power, and that it was unconstitutional.
The check cashers asked for a summary judgment on the complaint. The town, likewise in a cross motion, sought a summary judgment, in effect, to declare that Section 302(K) was valid.
The section provided that:
“ (1) Prohibition. In any use district except Y Industrial and LM Light Manufacturing Districts, check cashing establishments are hereby expressly prohibited.”
“(2) Definition. A check cashing establishment is defined as a place where checks are cashed and/or payday or other short term type loans are offered, but where general banking services, including but not limited to the establishment of savings and checking accounts, provision for deposits and withdrawals therefrom, and payment of accrued interest, are not offered on a regular basis.”
“(3) Amortization. Any check cashing establishment that is in violation of this subsection but is lawfully in existence in any unincorporated portion of the Town of Hempstead upon the effective date of this subsection shall become a legal nonconforming use and shall terminate by amortization no later than five years immediately following the effective date of this subsection.”

Check Cashers’ Arguments

First, the check cashers operating in the town’s business district claimed that Section 302(K) conflicted with New York State law.
Second, they asserted that the five-year amortization period constituted an unlawful taking of their property without due process of law.
Third, they claimed that Section 302(K) was not reasonably related to promoting the public health, safety, morals, or general welfare of the town. They further argued that its enactment was not a valid exercise of the town’s zoning power because, rather than dealing with the zoning of property, it impermissibly addressed the operation of the check cashers’ businesses. They complained that check cashing was not a use that can be regulated by zoning.
Fourth, the check cashers said that the section deprived them of their rights in property without due process of law.
And finally, they sought to permanently enjoin the town from enforcing Section 302(K) against them. In connection with the first four causes of action, the check cashers sought a judgment declaring the section null and void.
The check cashers argued that check cashing businesses in New York State were completely regulated by the New York State Banking Department and the Superintendent of Banks. They said that the Banking Law preempted Section 302(K) because it set forth a detailed and comprehensive regulatory scheme that demonstrated the state’s intent to reserve the field of banking for state oversight and control.
The check cashers contended that, because the field was preempted by the state, the town was precluded from enacting legislation in the same area.
In addition, they claimed that the section conflicted with provisions of the Banking Law. Accordingly, the check cashers argued that Section 302(K) was preempted based on both conflict and field preemption.

Large Zoning Out

The check cashers also contended that Section 302(K) was an invalid exercise of the town’s zoning power.
They claimed that the section was enacted with an exclusionary and discriminatory purpose, and that the town sought to “zone out” the check cashing establishment from certain districts simply because it deems such establishments undesirable for reasons completely unrelated to land use. The check cashers argued that this was not a permissible and valid use of the town’s zoning power.
Next, the check cashers said that the section was arbitrary and capricious because it was not enacted to further a legitimate government purpose and was not reasonably related to the end the town sought to achieve.
They argued that the town ignored the fact that their check cashing businesses were lawful, licensed and state regulated. The check cashers claimed that the town’s alleged comparison of check cashing establishments to “seedy” operations “akin to pawnshops and strip clubs” was irresponsible and demonstrated that it acted in an arbitrary and capricious manner because it perceived check cashing establishments as undesirable, clearly demonstrating a bias toward such establishments and the communities they serve. The check cashers asserted that Section 302(K) was “completely unrelated to the ‘evils’ imagined by the town.”
The check cashers then claimed that Section 302(K) was unconstitutional and that its passage violated their due process rights because they were not afforded sufficient notice or an opportunity to be heard. Although the check cashers acknowledged that a public hearing was held prior to the enactment, they argued that they did not receive adequate notice of the specific risk they faced in having their businesses terminated.
Finally, the check cashers claimed that Section 302(K) violated the Equal Protection Clause of the United States Constitution because it had a discriminatory and disparate impact. They said that the section effected an unconstitutional taking of their property because they would be forced to relocate or close their operations within the five year amortization period.

Submit Memo

In support of their motion for a summary judgment, the check cashers submitted an unsigned and unaffirmed “Inter Departmental Memo” dated Dec. 13, 2005. The subject of the memo was “Public Policy behind Check Cashing Ordinance,” and it stated that Section 302(K) represented “sound public policy.”
According to the memo, “Essentially, it serves the interest of encouraging young people and those of lower incomes to establish savings and checking accounts, do their banking at sound and reputable banking institutions, and develop credit ratings. It also eliminates predatory and exploitative finance enterprises from commercial areas, which is beneficial because these enterprises tend to keep a neighborhood down.”
The memo went on to state that, “Studies have found that a substantial portion of young and lower income people don’t have a bank account. Check cashing and payday loan establishments help to perpetuate this condition, by making it convenient for them to remain in the cash only economy. This is bad for society as a whole because it discourages savings and the development of credit ratings that will help young and lower income people later in life.”
The memo also observed that, “orthodox studies have found that check cashing establishments actually exploit the poor and African Americans” and that the high fees charged by check cashing establishments constituted a form of racial discrimination.
It indicated that check cashing businesses tend to cater disproportionately to minorities and pop up predominately in minority neighborhoods, keeping its patrons in the cash economy, to their detriment.
It also noted that the proposed ordinance would seek to end this pernicious exploitation and encourage banks and other financial institutions to become more conveniently located for everyone, including the poor and minorities.
Finally, the memo concluded that enactment of Section 302(K) would remove “a seedy type of operation, akin to pawnshops and strip clubs, from the commercial areas of the town.”

Town Response

The town largely denied the allegations in the check cashers complaint and asserted seven affirmative defenses, including that the check cashers’ claims were barred by the Municipal Home Rule Law. The town filed a cross motion for a summary judgment that would, in effect, declare that Section 302(K) was valid.
The town claimed that in the absence of substantial evidence to the contrary, the court was required to assume, as a matter of law, that the town acted rationally in enacting the section.
It asserted that the check cashers had no vested constitutionally protected property interest in the prior zoning classification of their properties, and accordingly, there could be no actionable claim of a taking. Moreover, the town claimed that the check cashers had not been denied due process.
Among the documents it submitted was a notice of a public hearing, dated Nov. 29, 2005, which stated that a hearing would be held on Dec. 13, 2005, to consider the proposed Section 302(K), “Restrictions on Check Cashing Establishments” and an affirmation of publication.
The town also submitted a summary of the law arguing, among other things, that the superintendent of Banks of the State of New York, as a defendant in the case of American Broadcasting Cos. v Siebert, provided a rational basis for the town’s concern that check cashing businesses represented a potential threat to public welfare.
In that case, the then superintendent conceded that, “the risk of robberies inherently exists in the check cashing business.”

Court’s Order

The court issued an order April 16, 2010, that denied the check cashers’ motion for a summary judgment and granted the town’s cross-motion, basically declaring that Section 302(K) was valid in all respects.
The court, in effect, ruled that the relevant body of state law did not demonstrate that the legislature intended to occupy the field of regulating check cashing establishments.
The court concluded that the check cashers failed to demonstrate that the doctrines of field preemption or conflict preemption prevented the town from enacting Section 302(K) and that they failed to rebut the presumption of validity. Finally, the court ruled that the check cashers failed to demonstrate that the section had violated the Equal Protection Clause of the United States Constitution.
The check cashers then appealed to the Supreme Court of the State of New York, Appellate Division. The Appellate Court noted that New York’s constitutional home rule provision “confers broad police powers upon local governments relating to the welfare of its citizens.”
Yet, noted the Appellate Court, although local governments do possess broad authority to enact legislation that promotes the welfare of their citizens, they cannot adopt laws that are inconsistent with the Constitution or with any general law of the state, and their power to enact laws is subject to the fundamental limitation of the preemption doctrine
Conflict Preemption
Broadly speaking, said the court, state preemption occurs in one of two ways: First, when a local government adopts a law that directly conflicts with a state statute; and second, when a local government legislates in a field for which the state legislature has assumed full regulatory responsibility.
The Appellate Court noted that conflict preemption occurs when a local law prohibits what a state law explicitly allows, or when a state law prohibits what a local law explicitly allows.
In determining the applicability of conflict preemption, the court said it examines not only the language of the local ordinance and the state statute but also whether the direct consequences of a local ordinance renders illegal what is specifically allowed by state law.
The crux of conflict preemption is whether there is a head on collision between the ordinance, as it is applied, and a state statute.

Field Preemption

Under the doctrine of field preemption, noted the Appellate Court, a local law regulating the same subject matter as a state law is deemed inconsistent with the state’s superior interest, whether or not the terms of the local law actually conflict with a state wide statute.
Such local laws, were they permitted to operate in a field preempted by state law, said the court, would tend to inhibit the operation of the state’s general law and thereby thwart the operation of the state’s overriding policy concerns.
Field preemption applies under any of three different scenarios, noted the court. First, an express statement in the state statute explicitly asserting that it preempts all local laws on the same subject matter. Second, a declaration of state policy demonstrates the intent of the legislature to preempt local laws on the same subject matter. And third, the legislature’s enactment of a comprehensive and detailed regulatory scheme in an area in controversy is deemed to demonstrate an intent to preempt local laws.

Banking Law Article 9 A

To determine whether Section 302(K) was preempted by state law, the Appellate Court said it needed to examine certain provisions of the Banking Law, specifically Banking Law Article 9 A, and related materials.
Article 9 A pertains to “Licensed Cashers of Checks.” A note accompanying Article 9 A, setting forth the legislative findings, states, in part, that “the legislature hereby finds and declares that the purpose and objective of article 9 A of the banking law, and specifically section 367, is to provide for the regulation of the business of cashing checks by the Superintendent of Banks whether the cashing of checks, drafts and money orders … is performed for customers that are natural persons or any business, corporation, partnership, limited liability company or partnership, association or sole proprietorship, or any other entity”
Section 367 pertains to license requirements for cashers of checks. Under that section, “No person, partnership, association or corporation shall engage in the business of cashing checks, drafts or money orders for a consideration without first obtaining a license from the superintendent.” To obtain a license, a person or entity must apply, in writing, under oath, “in the form prescribed by the superintendent.” The applicant must also pay to the superintendent a fee “for investigating the application.”
Section 369 of the banking law addresses conditions precedent to the issuance of a license, the issuance, and filing, and posting of a license. It provides, in part, that:
In setting forth the legislative intent in connection with the 1994 amendment of Section 369(1) of the banking law, which added a substantial portion of the foregoing language, the legislature stated:
“The legislature hereby finds and declares that check cashers provide important and vital services to New York citizens; that the business of check cashers shall be supervised and regulated through the banking department in such a manner as to maintain consumer confidence in such business and protect the public interest; that the licensing of check cashers shall be determined in accordance with the needs of the communities they are to serve; and that it is in the public interest to promote the stability of the check cashing business for the purpose of meeting the needs of the communities that are served by check cashers.”

Spam Alert

Have you been receiving CFPB spam?  Be on the lookout for emails which appear to originate from the CFPB, advising you that a complaint has been lodged against your company and asking you to “click here” or “open an attachment” for more information.


The CFPB has published a notice regarding malicious emails at: http://www.consumerfinance.gov/blog/notice-about-possibly-malicious-emails/

While not a foolproof test (as spammers often hide behind what appear to be valid email addresses), if you “mouse over” the sender’s email address, you may be able to see that it is not from the CFPB — even though the logo, colors and presentation might lead you to conclude that it might be real.  Remember, that next click may lead you to dangerous and damaging malware, spyware, viruses or the like. Read the CFPB notice at the above link for more information.

Richard Kelsky 

How Safe is Your Safe?

By Ric Blum

Just how safe is your safe? Is it made of 21st century, burglary-resistant composite materials? Does it have intricate locking and relocking devices? Does it use digital time locks to prevent unauthorized entry?
The average safe is not that hard to break into. All you need is the right tools, enough time and the ability to avoid detection. When you buy a better safe, you are actually buying more time for detection to occur.
The first thing to accept is if your safe is the burglar’s primary target, this is not going to be your ordinary burglary. Burglars who are targeting safes are going to be well trained and experienced. They will know locks, alarms, the use of the proper tools, your store layout and usually have an idea of the contents of your safe. They will know what kind of safe you have and exactly where it is located. Yes, they might have some inside knowledge of your operation, too.
You won’t have been chosen at random, but will be specifically targeted. A lot of time, effort and planning will have gone into this brazen attack. And you might have been targeted because of your lack of concern over security issues.
How will a burglar enter your store? Too often, business owners concentrate only on the doors.?Criminals know to look at the big picture.

Sneaking In and Watching

Illegal entry should be discreet — that is why rooftop entry is so popular. Often, if the owner or police show because of an alarm, they shake the door, look around and if nothing seems out of order, they leave.
As Jeweler’s Mutual Insurance reports, “Guards or police officers responding to a burglar alarm signal may not be able to detect exterior signs of forced entry and may leave without further investigation. Other times, burglars may trigger an alarm signal and wait to see who responds and how long it takes.”
A professional burglar may attempt to gain entry to your business in steps. First, he gets into an adjacent, unalarmed business. Next, he enters your business from above the ceiling (roof) and prepares to deactivate the alarm system. Your alarm system control box is not located above the drop ceiling, is it? Even if it isn’t, chances are all the wires feed up the wall into the ceiling.
Or a burglar may attempt to access your safe, possibly from the rear, from inside the vacant store to avoid your alarm system altogether.
Many experts say that safes located on an outside wall present the most risk. The risk will quadruple if the outside wall is next to a vacant business. Vacant space could be adjacent, above or below your business.
If a new tenant moves in, make sure they are legitimate. Landlords often overlook things like legitimacy when a store room has been sitting empty for a while.
If you must have your safes on an exterior wall, install alarmed glass panels on rear and sides of the safe to help prevent penetration from an exterior wall and include shock and vibration sensors.

Location, Location, Location

Whether your safe is on display for the public to see or hidden in back is often a matter of your physical layout or convenience.
I have visited many pawnshops where multiple large safes are located right behind the pawn counter where customers may look into them and see all the envelopes full of jewelry. Is this supposed to make your customers feel their jewelry is safe?
It may not be a wise idea to have your safes exposed to everyone who walks in, especially if they are inadequate for protecting your loans or merchandise. This gives the potential burglar first-hand knowledge of what he is up against and the exact location of your safes. In essence, you are doing the burglar’s homework. He now knows exactly what you have and where it is located.
The logic here is the safe is safer because it is in plain sight. Anyone passing by the pawnshop at night can see the safe, including the police (and the bad guys). The visibility from the street adds an additional layer of protection.
Even if you take the hide-it appraoch, no matter how hard you make it, people will always know where your safe is located.
Delivery people, maintenance people, inspectors, repairmen, pest control, HVAC, remodelers, all notice things when they are in your pawnshop and you have no control over who their friends are or with they share what they saw.
Can this information be shared? You bet! Digital cameras are everywhere. Everyone has one. Cellular phones are capable of taking snapshots or recording full length videos. They even sell surveillance-equipped glasses for discreet recording.
Ideally, you should have a large vault or vault room with safes inside. But this is not always practical or affordable.

Replacement Safes

Many of us are thrifty by nature and for cause. We tend to buy local because we can see the product and save money on shipping. At any given time there are a number of adequate safes listed on eBay. But sometimes, a dollar saved is not really a savings.
If your safes are old and outdated, you can find used safes available everywhere. Hey, the economy isn’t that great. Jewelry stores and other businesses are going out of business every day. Check with your safe specialist, who may have taken a trade-in or possibly acquired a used safe from an expired lease or repossession.
Your safe or vault is undoubtedly your final defense against property loss. And, like most things in life, the bigger (stronger), the better. Again, like most things in life, the more protective the safe, the higher the price tag.
Many pawnbrokers are still using the same safe their grandfathers used. I have seen pawnshops where safes were lined up behind the pawn counter against the wall. These are often what I am fond of calling old “rolling record safes” — large, concrete-filled, single or double-door safes on four wheels whose only real protection is armor plate welded to all six sides. This type of safe is easily peeled open with common hand tools.

50 Years of Improvement

While the iron or steel box safe had been the industry standard for more than 100 years, the first real improvement in safe design came in 1962 when Chubb introduced a new production method incorporating TDR (Torch and Drilling Resistance).
This concept was the creation of a seamless bell casting which formed the five-sided protective walls of the safe. Being cast from a proprietary material which deterred cutting and drilling, the safe seemed to be resistant to all the common tools of the day. The door was made of the same material as the safe body.
Safes were now being filled with newly developed, super hard security concrete fillers as an additional effective barrier against forced penetration.
Concretes with fiber fillers and other additives, which were commonly vibrated onto reinforcements securely affixed inside the safe’s shell casting, also hindered attacks by requiring heavier breaching tools, offering longer resistance and often the need to create more noise and smoke, not to mention operator fatigue.

Safecracking 101

Safecracking is any attempt to open a safe with or without the use of the proper combination or key and generally without the safe owner’s consent. While this effort may take two forms, non-destructive and destructive, the latter tends to be most popular.
First and foremost, one must understand that it is not the lock itself that keeps the safe door closed. These locks are merely the ‘key’ to releasing an elaborate mechanical bolt network that secures the safe door from all sides. The hinges on the safe door are not designed to really provide any protection, but merely to keep the door stable and in place.
How to break into a safe is usually a question that only thieves and locksmiths ponder. But anyone owning a business with a safe should have the same thoughts. The more knowledge you have, the more you can protect yourself and your property.
Your safe’s location should be one of your first concerns. Placing your safe against an outside wall may be the most efficient use of space in your building. And you may have fitted your safe with time locks and door alarm contacts. However, depending upon your location’s physical attributes, you may be offering burglars an opportunity to break into your safe without actually setting foot in your store.
If professional burglars are able to gain access to your store all night or weekend because they have compromised your alarm, they could still gain entry to your TRTL-60X6 safe with the proper equipment. The addition of shock or vibration sensors to your safe will be useless if your alarm system is not operational.
A lot of newer safes have security measures in place to prevent some safecracking techniques popular in the past. However, I know many businesses are still relying upon very old and outdated safes and combination locks for security of their goods. So this data is still applicable.
Electronic time delay locks will keep someone from opening the safe in the usual conventional way – by means of the safe door. But our focus here is more unconventional entries, where the person trying to gain entry may be more inclined to use the back or side of the safe for entry and avoid the door altogether.

Non-Destructive Methods

Non-destructive safecracking is based upon overcoming the combination lock and/or key lock by manipulation. Although not necessarily the easiest method of entry, once the locks have been manipulated with the proper sequence of numbers, or the key lock picked, the door will open without any further resistance — the easiest way to gain entry (by opening the safe door, not manipulating the locks).
Almost all safes are shipped from their manufacturer with a preset try-out combination with the intent for the purchaser to pay his local safe mechanic to change the combination.
This doesn’t always happen. Many safe owners continue to use the try-out combination. These try-out combinations are an industry standard and known to all safe vendors, locksmiths and safecrackers (50 – 25 – 50 and 100 – 50 – 100, used to be popular).
Don’t buy an expensive new safe and then be cheap. Have the combination changed.
One method of lock manipulation used by safe mechanics (these are the good guys who work on your safe) and possibly the best safecrackers was devised by Harry C. Miller in 1940. It allows for opening a locked safe without drilling or defacing the safe by using a stethoscope or other electronic listening device.
Miller’s scientific system is a three-step process which manipulates the lock into exposing its combination.
1) Determine the contact points
2) Discover the number of wheels
3) Graph your results
While not as fast as is seen on TV or in the movies, in reality, it is a system that has merit. Sorry, I’m not going to reveal the entire system.
As technology advances, more and more anti-manipulative locks are being marketed. These locks may use wheels made of softer or lightweight materials such as nylon or polycarbonates which may be just as hard and not as telltale as metal wheels.
Auto-dialers, such as the Intralock ITL 2000 Safe Dialer, are computer controlled devices that test the entire set of possible combinations. They mount to the face of the safe and electronically start to dial away. Although this method is very feasible, it may take a considerable amount of time before the safe’s combination lock is breached.
Intralock advertises their ITL 2000 Safe Dialer as having these features:
• Quick and Easy Set up. Only 15 minutes needed
• No supervision required. Once in place, it runs until safe lock opens.
• Average opening time is 6 hours.
• Non-invasive. Safes remain intact and costly repairs are avoided
• 4 dialing speeds for loose wheels
Wheels can be dialed:
• to every possible safe lock combination
• through a specific range of numbers
• Dialer mount attached by strong rare earth magnets
• Reversible jaws grip most dials
While Intralock only sells its Safe Dialer to licensed, bonded and certified security professionals and to law enforcement, things have a way of getting into the hands of the wrong element.
Vibration is a method that was used in the past and may still be applicable on some older combination locks.
This method applies a vibrating mechanism to the combination dial and allows the wheel gates to slowly rotate to the proper “unlock” position. This occurred because of the weight difference between the wheel and the gate.
Modern combination locks alleviate this method by designing wheels that are evenly weighed.
Radiological attack uses a penetrating radiation (beta ray, gamma ray, neutron beam, ultrasound, and x-ray) from a portable device to discretely view the inner workings of a combination lock.
This aligns the wheels in the correct position to engage the lever arm and open the safe door.
Some combination lock wheels are now made of low density materials to prevent this type of attack.
UL Group 1R type combination locks use acetyl resin or other non-metallic wheels to resist x-ray imaging.
Ultra-Violet and Thermal Imaging
Ultra-violet and thermal imaging, which will show UV residue or heat, may be used to indicate which keys or buttons have been used on a safe with an electronic based combination.
While this method may not show the combination, it will narrow down the possibilities by revealing the numbers used most recently.
This method may also be used to detect the numbers entered into your alarms system’s keypad. Can your safe or alarm’s digital keypad be seen or accessed by others? Can I watch you unlock or enter your combination or codes through a telescope or high-powered camcorder’s zoom lens?
Typically, an item the combination owner will come in contact with is coated with a ultra-violet ink.
When the safe combination is initiated, the ink is transferred to the corresponding keys on the electronic keypad. A simple black light can reveal which keys were used.
Thermal Imaging
Thermal imaging is a specialized technology on its own. But when used in conjunction with electronic access controls (electronic safe locks), it can be a quite effective tool.
Technically, the potential safecracker would need to deploy an uncooled micro bolometer thermal imaging (far infrared) camera within five to ten minutes after an electronic key code was entered.
The heat transferred from human contact, even for a split second to the keys, dissipates very slowly, making a reading of the contact possible after the combination owner has left.
The sequence in which the keys were depressed would also be evident by a difference in the color of the keys as they cool, and are visualized or recorded by the thermal image. This image may even be read from a distance of one to ten meters allowing the safecracker to maintain a low profile.
Handheld portable thermal imaging devices and cameras are made by companies like Flir and Fluke and are available to the public — and yes, you can even buy them on Amazon.com.

Care Pays Off

In theory, this all works just fine and I’m sure has been used in a movie plot or two. In reality, usually only inside personnel are able to get that close to a safe soon after it has been opened.
Not that an insider might not want unauthorized access or the opportunity to make a few bucks on the side by selling the combination.
There are simple ways to help overcome this method of attack. Use an inanimate object to depress the keys of the electronic combination lock. Hold your hand over the keypad either before or after (or both) to warm all the keys. Use a number twice to make the actual combination harder to detect. Scrambling keypads are also available for high security instances.
Electronic locks are becoming more popular in safes these days and often allow for each individual with access to have their own access code, which then allows for tracking (for security purposes) to determine who was the last one who may have opened a safe. Sophisticated models have a built-in date and time stamps that may record up to the last 200 users and combination entries.
Advances in technology are not usually far behind innovation. J.D. Hamilton of the Mas-Hamilton Group, innovators in electronic locks, has developed a safecracking software that interfaces with electronic locks and will run a sequences of numbers until it finds the proper combination to open an electronic lock. There are reported to be a number of clones of this software on the market.
In these types of scenarios, I see the keypad to your alarm system most susceptible to these threats. Gaining access and deactivating the alarm is step one.
Does your safe or alarm’s electronic keypad have white keys? If so, keep them clean. Dirt from your fingers will eventually build up on the keys and make it easy for anyone to observe which keys are regularly depressed and which are not. n

Editor’s Note: This is Part One of a multi-part series on safes and security.

Ric Blum is a vice president of Ohio Loan Co. in Dayton. He has served as president of the Ohio Pawnbrokers Association, secretary/treasurer of the National Pawnbrokers Association and as a member of the board of directors and the board of governors of the National Pawnbrokers Association. Please feel free to e-mail your comments or tips that you would like to see included in this column to RicBlum@att.net or mail them to Ric Blum, Ohio Loan Co., 3028 Salem Ave., Dayton, OH 45406.

Cordray In Place, Holds Payday Loan Hearing


By Phillip Lee

It certainly didn’t take long. It was ready and waiting. All it needed was someone to lead it. When that became official, it was full steam ahead and off to the races.
The Consumer Financial Protection Bureau was up and running in July of 2011, but without a director. President Barack Obama nominated Richard Cordray to be its director, but the confirmation process went at a snail’s pace. That all changed in the first week of January when Cordray was named CFPB director with a recess appointment.
Cordray’s nomination was a political football as the Senate battled within its ranks to get a confirmation hearing set. Obama had made no secret that he wanted Cordray in place and eventually used the authority of the recess appointment to install him. However, the move has been controversial in terms of whether the president actually has the authority to make this recess appointment.
The move was and was not a surprise to industry officials.
“The idea of a recess appointment has been long discussed as a possibility,” says William Sellery, executive director, Financial Service Centers of America. “With the Republicans working to keep the Senate technically in recess, such an appointment seemed unlikely. For that reason it was unexpected.”
“Not really (surprised),” says D. Lynn DeVault, board chair, Community Financial Services Association of America Community Financial Services Association of America. “The administration had been hinting that there would be a recess appoint so it shouldn’t have come as a surprise to anyone.”

Quick Field Hearing

As soon as Cordray took over the reins, it was apparent non-banks and small loans were at the top of CFPB’s list. Two weeks after his appointment, the CFPB held a field hearing on payday loans in Birmingham.
At the January hearing, Cordray acknowledged the need for “emergency credit,” but also the need to protect consumers.
“One person from Michigan told us of having to use payday loans several times and wanting them to remain available because alternatives did not exist,” Cordray said.
“And so I want to be clear about one thing: We recognize the need for emergency credit. At the same time, it is important that these products actually help consumers, rather than harm them.”
Cordray also announced the Short-Term, Small-Dollar Lending Procedures for the CFPB’s examiners on banks and payday lenders.
“Our examination authority is an important tool that will allow us to inspect their books, ask tough questions, and work with them to fix any problems we uncover,” Cordray said.
“This includes looking at the materials and strategies that are used to market the loans. Before this month, the federal government did not examine payday lenders. Some state regulators have been examining payday lenders for compliance with their state laws. We hope to use our combined resources as effectively as possible.

‘Important New Area’

“So now, the bureau will be giving payday lenders much more attention,” Cordray said. “This is an important new area for us. And the purpose of this field hearing, and the purpose of all our research and analysis and outreach on these issues, is to help us figure out how to determine the right approach to protect consumers and ensure that they have access to a small loan market that is fair, transparent, and competitive.”

Customer Claims Bad Checks Were Loans

By Richard Weatherington

When confronted with multiple returned checks, customers can come up with some interesting claims to try and avoid a conviction for theft-by-check. Recently, a customer claimed that her returned checks were like loans made by the check casher and the check cashing fees she paid were interest for those loans.

A woman, whose first name was Maria, operated a cafeteria, catering, and vending machine business with her three sisters. Between Aug. 8 and 11, 2006, Maria presented 16 company checks she had signed, totaling $93,520, to a Texas check cashing business.
The check casher cashed the checks, which were later returned as “uncollected” or for “insufficient” funds. Although Maria promised the check casher several times that she would pay the checks, she never did.

D.A. Steps In

The check casher contacted the county district attorney’s office, and a fraud investigator in the hot check division, was assigned to the case. After discussions that included her attorney, Maria signed a notarized “Diversion/Partial Payment Program” agreement dated Sept. 25, 2006. The investigator signed the agreement on behalf of the district attorney’s office.
Maria initialed the paragraph in the diversion agreement acknowledging she would not be indicted or prosecuted if she made full restitution by the due date.
Maria paid $3,000 when she signed the agreement in September. She paid another $16,000 in November.
Although she was given several extensions of time until March 2007 to pay the remainder, she made no further payments and was charged with theft-by-check in May 2007.
The evidence at her trial showed that at the time Maria presented the checks to the check casher in August 2006, he had been cashing her business checks since late 2004.
Between December 2005 and Aug. 6, 2006, the check casher cashed more than 1,000 checks totaling approximately $4.4 million and for which he charged total check cashing fees of approximately $88,000.
The check casher testified he was comfortable cashing the larger checks after physically visiting one of Maria’s job sites and observing the nature of the business.
Maria claimed that her business arrangement with the check casher was like a loan because he would cash her checks knowing there were insufficient funds in the company’s bank account. Maria said he would hold the checks for a day until she could deposit money from other sources to cover the checks.
She claimed the check casher’s check cashing fee was interest for these loans and that this arrangement was necessary because she had a “cash flow problem.”

Claims No Debt

The check casher testified he normally deposited checks the evening of receipt or the next day; he denied having an agreement with Maria to hold her checks for one day. He also testified he believed she had the funds in her account to cover the checks when he cashed them.
The trial court questioned him about why Maria went to him instead of the bank. The court said it sounded like she was short of money, noting that she would put a $10,000 catering job check in the bank, and tell the check casher that she couldn’t wait till it cleared, because she needed the money right then.
The check casher said that was the case most of the time for business customers. The court asked if that was kind of a typical transaction, and he said it was.
Maria claimed she had “no intent of stealing any money.” She told the court that the August 2006 checks bounced because checks from one of her suppliers “started returning,” which caused her bank to “freeze” her account. She also said her checks would not clear because her account balance fell too low when the supplier’s checks bounced.
Maria presented evidence that showed the supplier’s checks were being returned as early as July 2006. She also testified that she “had no problem until they froze the account” and that her checks to the check casher would have cleared “had they not froze the account.” The only evidence, however, that Maria’s account was frozen came from her own testimony.
The state presented evidence that Maria’s account was overdrawn in the amount of approximately $48,000 on Aug. 17, 2006.
Maria claimed the bank “unfroze” her account after two months with a balance remaining of $16,167.33. Her July 2006 bank statement showed deposits being made almost every day through the last day of the month2006. The August 2006 bank statement showed no deposits after the 14th. The September 2006 bank statement showed no activity on the account.
The investigator, who at the time of trial had been the fraud, hot check division supervisor for approximately four years, testified no one presented him with or described any loan agreement or arrangement as had been claimed by Maria. He said he saw nothing that caused him to believe the situation presented anything other than a theft by check case.

Convicted of Theft

Maria was convicted for theft by check in an aggregated amount of at least $20,000 but less than $100,000. The trial court sentenced her to two years in prison, suspended the sentence, placed Maria on 10 years’ community supervision, and ordered her to pay $109,147 in restitution.
Maria appealed her conviction to the Texas Court of Appeals, claiming first that the evidence was legally insufficient to show she had the intent to commit theft at the time she wrote the checks and, second, that the trial court should not have admitted the pre indictment diversion agreement, which she claimed was inadmissible.

Sufficiency of the Evidence

On appeal, Maria first claimed that the evidence was insufficient to support her conviction because the state failed to prove beyond a reasonable doubt that she “had the intent to commit theft at the time she wrote the checks.”
In determining whether the evidence is sufficient to support a conviction, the Appeals Court said it must view all of the evidence in the light most favorable to the verdict and determine whether any rational trier of fact could have found the essential elements of the crime beyond a reasonable doubt. The standard recognizes that the trier of fact is the sole judge of the credibility of the witnesses and the weight to be given their testimony.
A person commits the offense of theft if he “unlawfully appropriates property with intent to deprive the owner of property.” As to each check here, said the Appeals Court, the indictment alleged that Maria unlawfully appropriated the check casher’s property (currency) with intent to deprive him, and without the effective consent of the check casher, namely, by issuing and passing a check, when Maria did not have sufficient funds in the bank for the payment in full of the checks.
The issue was whether the evidence supported a finding beyond a reasonable doubt that she unlawfully appropriated the check casher’s property. Appropriation of property is unlawful if, as alleged in this case, it was without the owner’s effective consent.
The Appeals Court noted that the check casher consented to Maria’s appropriation of his property — he cashed her checks. But this consent was not “effective” if it was induced by “deception.”

Definition of Deception

“Deception” is basically defined in the theft provisions of the penal code as failing to correct a false impression of law or fact that is likely to affect the judgment of another in the transaction, that the person previously created or confirmed by words or conduct, and that the person does not now believe to be true.
Measured against this legal standard of “deception,”, said the Appeals Court, a rational trier of fact could have found beyond a reasonable doubt that Maria unlawfully appropriated the check casher’s property.
She knew she had cash flow problems. She not only admitted, but insisted, that she had the check casher cash checks for her at a time when there were insufficient funds in her bank account.
She also knew her checks would not clear when checks from the supplier “started returning.” Those checks were being returned in July 2006.
Maria’s bank records showed the account was overdrawn by approximately $48,000 on Aug. 17, 2006, within a week of the August 11 checks the check casher cashed for her. The checks to him were returned as “uncollected” or for “insufficient” funds, and Maria failed to pay him back despite repeated promises to do so.
The check casher testified he deposited Maria’s checks the day of receipt or the next day and he believed she had funds to cover the checks. The fraud investigator testified based on his experience that he saw nothing in his investigation that caused him to believe the situation presented anything other than a theft by check case.

Cites Evidence

The Appeals Court said that the trial court was the sole judge of the credibility of the witnesses. From this evidence, the trial court could have concluded beyond a reasonable doubt that Maria obtained the funds from the check casher by failing to correct a false impression she had previously created that the funds would be in her account at least by the next day; the impression likely affected the check casher’s judgment, and Maria did not believe that impression to be true.
Maria argued that the key issue in this case was whether deception existed at the time the checks were written, and whether the state proved that on the date she wrote the checks, there were insufficient funds in her account to cover them.
She claimed the evidence was clear that on the dates the checks were written, she had no reason to believe the funds were not in her account, and she therefore did not have the intent to commit theft.

Recent Case

The Appeals Court noted that in 2011, the Texas Court of Criminal Appeals decided in the case of Geick v. State that “if an indictment uses a statutory definition to specify how a theft was committed, the state must prove the offense as charged in the indictment.”
In that case, the court held the state was required to produce evidence of “deception” because the state unnecessarily pleaded that the theft was by deception but provided no proof of deception; the evidence therefore was legally insufficient to support the conviction.
The indictment in Maria’s case, said the Appeals Court, alleged that with each check, that she unlawfully appropriated the check casher’s property with intent to deprive him, and without his effective consent, namely, by issuing and passing a check when she did not have sufficient funds in and on deposit with the bank for the payment in full of the checks.
This allegation, unlike the allegation of “deception” in the Geick case, was not a statutory element or definition of a theft offense that narrowed the manner and means under which Maria could have been convicted of theft.
Therefore, this allegation didn’t, for sufficiency purposes, exclude theft by deception as a manner and means in which the offense could have been committed.

Allegation Supported

The Appeals Court noted that even assuming the state was required to produce evidence to support the allegation of insufficient funds, the evidence supported the allegation.
Maria’s August 2006 bank statement showed she wrote three checks totaling $18,025 on Aug. 8, 2006, with her daily balance on that date being $7,116.31.
The bank statement also showed Maria wrote three checks totaling $15,525 on Aug. 9, 2006, with her daily balance on that date of $928.07. This was some evidence that Maria knew she had insufficient funds in her bank to cover these checks when she wrote them.
The aggregated amount of these checks exceeded $20,000 and was less than $100,000, which was the range alleged in the indictment. This evidence, and evidence the checks were returned as “uncollected” or for “insufficient” funds, supported the indictment allegation that Maria passed the checks when she “did not have sufficient funds in and on deposit with the bank for the payment in full of the checks.”

Measuring Twice, Choosing Once


Jan Collins, administrative services manager for Lighthouse Financial Group, doesn’t hesitate when asked to name her company’s preferred method of screening candidates for jobs.

“Face-to-face interviews are our rule because we have to see how candidates get along,” Collins says. She said the hiring system at the company is based almost entirely on how job prospects interact with others. “Our hiring managers can tell right away if they have the right attitude and demeanor for the job.”

For Jan and others in the check-cashing and payday loan industries who were asked about their preferred method of screening potential employees, the one-on-one interview — in-person between the interviewer and the candidate — is their way of choice.

But a new school of thought is emerging. For many recruiters, the in-person interview is being supplemented and in some cases, replaced by another screening method: Online or written employment tests.

The one-on-one interview has been the preferred method of interviewing for companies for many years. For countless hiring managers and owners, this format gives the interviewer important clues into the candidate’s character and how the candidate relates to another person. After all, it’s the core of any retail business in which the customer experience is a vital part of everyday life.

But in some companies, the in-person interview is being supplemented and even replaced by online screening or written tests. Recruiters say there are several factors driving this trend.

Misleading Chemistry

While an in-person interview offers immediate insights into an individual’s personality and his or her ability to relate to another person, some recruiters argue that it’s this very chemistry that can be misleading and even deceiving.

Candidates for jobs today can be especially effective and even skilled at self-promotion in person, and subjective feelings and attitudes can exert significant influence on a recruiter in an interview.

In addition, recruiters may not always be trained well enough to ask the questions that can reveal more about a prospect than she or he would like the company to know. An interviewer can often base screening decisions on impulse and basic chemistry with a candidate instead of more rational and logical reasons.

An employment test is straightforward, consistent and, perhaps most important objective. A test or other form of assessment can help employers make decisions based more on logic than on emotion.

“In-person interviews are based on inductive screening, which typically provides a distorted perception of a candidate because it’s a subjective process,” said Don Everett, president and founder of Workforce Interactive, a personnel testing firm that specializes in values-based evaluation.

Two Categories

He breaks down interviews into two basic categories: inductive, in which theoretical behavioral questions are asked, and deductive, which is based on objective comparisons.

“The longtime standard, Myers-Briggs (Type Indicator), looked at inductive screening,” Everett says. “Those theoretical questions brought their expected results as well as a distorted perception.”

Everett explains that deductive screening is based on objective comparisons and results in a far more accurate assessment of an individual’s value system and likely behavior on the job. He pointed to the Bernie Madoff case as an example.

“People believed he was a kind man because how people act in front of others is not inductive of who they are,” he says.

“If he’d been tested with a deductive test, which is based on axiology, he’d have been flushed out long ago.” Axiology is the philosophical study of value and ethics.

Everett notes that untrained interviewers base decisions on how they feel toward a particular candidate fairly quickly — sometimes within ten minutes of an interview.

Proven Results

As a demonstration of his firm’s technique, Everett pointed to a 2009 case study in which 372 teller candidates were given Workforce Interactive’s values profile exercise. The company’s system rated candidates as having strong values (e.g., conscientious, trustworthy, high personal standards that would present a low risk to an employer) or poor values (less than ideal conscientiousness, trustworthiness and personal standards which posed a higher risk to an employer).

Managers in the study were allowed to hire whomever they wanted, and they wound up hiring 100 of the 372 candidates.

Everett’s firm followed up six months later, with the point-of-sale data associated with each teller considered so operating performance could be evaluated along with core values ratings.

The researchers were surprised: Tellers with strong values had a cash short per day metric almost one-tenth that of their colleagues who had exhibited poor values in their pre-employment screening.

This metric shows reconciliation of actual cash on hand in register to expected cash on hand in register based on transaction log. This means that low cash short positions are preferred and zero balance cash short positions are the ideal goal.

When computed by cash shorts and forgeries, the study showed that annualized losses were 150 times greater in the poor values group of employees. In addition, the group that tested for strong values processed zero forgeries. The group with poor values had annualized processed losses due to forgeries of almost $100,000.

Clear Conclusion

Conclusion: Individuals testing for strong values proved to be more conscientious and diligent in their review of presented checks because they closely followed their employer’s policies before releasing funds, and they avoided even the suspicion of dishonesty with mishandling of cash, while the poor values group was responsible for many cash imbalances.

“Anywhere people have access to lots of cash, there is the increased chance for theft if people have low values,” says Everett. “If a person has poor values, they’ll find out how to use (dishonest practices) in every environment.”

Not surprisingly, he is a big believer in axiology. “Axiology is not about what people think but how they think and how someone’s value system is prioritized. The way some candidates think about relationships are affected, while others consider those relationships in relative terms, and still others think of them systematically — such as a conviction never to go on a blind date, no matter what.”

Testing identifies those values in a person, Everett says. “Testing helps differentiate a person’s aptitude for a job: One can be a good nurse but not a good doctor.”

Core Competencies

He also points out that testing can help an employer decide which employee excels in which area of responsibility. “There are different cultures for different companies, and the application of axiology proves how a person prioritizes values. Induction was a popular screening method for a different time — maybe 50 years ago — but today it’s time we turn to deduction for accurate feedback,” Everett says.

David Johns, the owner of Five Star Pawn and Jewelry and a pawn industry consultant, gives high marks to the screening methods his company uses. Like the method described by Everett at Workforce Interactive, his company employs a screening test comprising basic questions.

“We have been very successful with our approach,” Johns says. “Our standard set of questions actually allows for more flexibility for our interviewers by letting them ask other questions beyond the basic set.”

Johns says the core questions for prospective employees represents the first level of the interview process. “Our guide contains core competencies for job candidates and we administer it prior to the first interview.”

Art Sanders, director of human resources for PLS Financial Services, is blunt. “Nothing replaces one-on-one, the face-to-face,” he insists. “There never will be anything to replace it, but there are tools you can add that will help you with your decision. With testing, as with background checks, there are tools that can help, and tests are one of those tools.”

Sanders explains that customer service representatives at PLS are given assessments (“They’re assessments,” Sanders quickly adds. “We don’t call them tests.”) and they administer the same two for each candidate: The first is numbers-related, while the second is based on personal interaction. Neither, he said, is pass-fail.

Sanders acknowledges there’s room for consideration of a candidate’s values, much as Everett describes. “There are vendors with tests that measure value,” Sanders says. “We don’t use one at the moment but we’re looking into it.”