Opportunity Brings Responsibility


There’s no denying that the number of checks is decreasing.

But look at it another way: there was a time when this industry was 100 percent checks. Then came money orders, wire transfers, bill payments, payday loans, benefit payments, phone cards, lottery, transit passes, tax returns, title loans, subsidized housing, parking ticket and toll tag payments, gift cards, prepaid cards, direct deposit, prepaid unloads, gold, small dollar loans, credit card payments and bank deposits.

And the list of ancillary products keeps growing.

The fact is, ancillary products ain’t so “ancillary” anymore. Collectively, they now account for a major portion of business. Individually, some have become primary. And they all appeal to a broader customer demographic.

But the number of products alone does not ensure success. Your success with any product depends on the marketing, sales and management effort you put into it. And, as more ancillary transactions are moving to real time over the Internet, you need to change the way that you do things —right now.

Opportunity: The chance to succeed. The opportunities that new products present are huge. With each new product, you get the chance to attract new customers seeking those services, and introduce those new services to existing customers.

The key word is “chance.” Products don’t sell themselves. You can’t just take on a product and sit there.

Communicate with the outside world. Unfortunately, other than signs reflecting core services such as “Checks Cashed” and “Loans,” the industry has little experience in reaching potential new customers with broader demographics. And communicating with potential customers is the only way to get them in the door.

That requires a plan. You can start by retaining a marketing firm that has industry experience — most offer a range of support from small, targeted programs to broad, multi-level marketing. If that’s beyond your means, visit some successful local competitors and start doing what they do. Attending major trade events like the Financial Services Center of America’s Annual Conference and Exposition is mandatory: that’s where you find out what’s new in products, marketing and regulation, and what industry leaders are doing.

New products, properly marketed, attract new customers.

Existing customers need love, too. In the past, employees were your face to the customer — but after that smile and a few words, they had to be all-teller-all-the-time to protect you and your business.

Today, it’s different. Tellers need to be many things. Tellers, first and foremost, but also salespeople, supported by marketing and rewards programs, signage, advertising, multi-media, and mobile communications — and training. Training on products — features and benefits, cross-selling, what’s best for each customer, and proper handling of each type of transaction. Even with an experienced staff, this last type of training cannot be taken for granted.

Adapt policies to new products. With each new product, you will need to review your policies, and put in place appropriate operating, management, compliance, disciplinary and loss recovery policies to protect you, your business, and your customers.

These policies must be reflective of risk, both through negligence and deliberate wrongdoing. And while you’re considering risk, check your insurance to make sure that it covers things such as employee theft of monies from customer accounts and theft by misuse of services (such as employees loading their own prepaid cards).

Real time transactions. With real time transactions, the opportunities for increasing revenues, profits and customer base are endless. But remember, real time may mean that what used to be correctable mistakes (or wrongdoing) cannot be fixed today. Today, when the button’s pushed, the money’s gone.

And finding those “mistakes” can be tricky. That’s where POS integrated services can help improve accountability. Also, if your system has built-in teller reminders, use them.

Compliance. This area is expanding its reach into new products.

If your methods and systems are antiquated, compliance issues can be missed or deliberately sidestepped.

Teller dishonesty. If a card unload that’s supposed to be $200 becomes $300 (and the customer still only gets $200), very complex problems can ensue.

And if tellers load their own cards, that comes right out of your pocket.

Teller accuracy. Even assuming 100 percent honesty, accuracy is an equally important issue.

If your teller is on a cell phone or texting while handling a transaction, a $25 load can easily become $250 — in real time.

Business-quality Internet. Even if your POS system can handle transactions such as check cashing, loans, money orders, customer lookups and reporting without the Internet, you won’t be able to process other web-based transactions if your Internet lines are down or just too darn slow. Which means you need great Internet service.

That comes at a price (i.e. more than $19.99 a month for DSL that goes out every time it rains) — and that’s a price you have to pay. If you can get FiOS, get it. It’s ultra-fast and reliable. Regular cable can be OK as well, but in my experience, it can vary greatly depending upon provider, locale and speed options selected.

If you don’t know how to figure out what line to order, ask your IT professional.

Security cameras and VOIP phones suck the life out of Internet lines. So if your store is processing transactions at three teller stations, sending an electronic deposit, using two VOIP lines, streaming videos, and emailing — all while you’re watching the store through the camera system — be prepared to max out your Internet line. You’ll know when phone calls drop, camera images barely move, and Web transactions come to a halt.

You can pay someone to engage in complex load-balancing or just get the right line now to help avoid the problem. And no matter what you do, your Internet lines will go down —so be careful of how dependent you become on Web-based products, like VOIP, just to save a few bucks.

Knowledge is power. Become familiar with your store’s systems and Internet configuration. You need to understand your network, have a diagram of your network, know the components in your network (modems, routers, switches, power supplies, cables, wireless, network cards, PCs, etc.), any passwords needed to access your router or modem, and all of the relevant Internet contacts and account numbers.

Whatever you do, resist the advice of the help desk at your ISP to push the reset button on your router. It’s rarely a solution to an Internet issue — just a knee-jerk reaction of the unsophisticated support person who cares little about the damage they leave behind.

And that employee you say is an “expert” with computers? A person who turns off the monitor when asked to reboot the PC is never going to solve your Internet connection issues.


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 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. This article does not constitute legal advice and is an expression of opinion by the author and not of any entity or organization.

Cordray Appointment Now Unquestioned



Things are clearer at the Consumer Financial Protection Bureau.

That’s because Richard Cordray was confirmed by the Senate and “officially” appointed as director of the agency.

Cordray, who was confirmed by a vote of 66-34, has been director since January 2012 via recess appointment. Since the duration of a recess appointment is only for a year, Cordray was re-nominated by President Barack Obama this past January.

The Financial Service Centers of America, the Community Financial Services Association and the Online Lenders Alliance stressed that they will continue to work with Cordray and the CFPB.

“We’ve considered Richard Cordray our director for the past two years since the CFPB was created,” says William Sellery, executive director of FiSCA. “We will certainly continue working with the CFPB to ensure their regulations recognize the role of small dollar credit products and our members.”

“CFSA and its members have had a productive relationship with Director Cordray and his staff since the CFPB’s inception, and we look forward to continuing our dialogue,” CFSA says in a statement.

“Director Cordray and his staff have always been open to meeting with and listening to CFSA and its members, and we find that encouraging in terms of our relationship and ongoing work with the Bureau.

“Since the CFPB’s creation, OLA and its members have enjoyed a cooperative and productive relationship with the bureau. Our members meet with Director Cordray and his bureau chiefs regularly to educate them about the short term, online lending industry and the consumer demand that drives its growth,” said Lisa McGreevy, president and CEO of OLA.

“The CFPB was created to confront 21st Century financial challenges. Consumers are increasingly using 21st Century technology to pay bills, access credit and purchase goods and services online and our industry is using technological innovation to meet their short term lending needs. We are working with the CFPB to ensure the regulations recognize the innovations in the financial services industry used by industry and consumers.”

Controversial Agency

Cordray was originally tabbed for the position in July 2011, but his confirmation was blocked by Senate Republicans. His confirmation was stalled not necessarily because he was unqualified, but because legislators had problems with the CFPB as an agency in general.

President Obama decided to use his recess appointment privileges and installed Cordray as director of CFPB in January 2012.

Cordray was thrust into controversy this past year when a three-judge panel of the U.S. Court of Appeals for the District of Columbia Circuit handed down a decision that President Barack Obama’s National Labor Relations Board appointments “were constitutionally invalid” because the Senate was not in recess. Those appointments were made at the same time Cordray was appointed.

The reason it may affect Cordray and the CFPB? Cordray was also a recess appointment, made on the same date as the NLRB members.

In the published report, the lawsuit was brought by a soft drink bottler who lost a union dispute before the NLRB. The company claimed that the president had no power to appoint the new NLRB members, and that the subsequent action by the board therefore lacked legitimacy.

If the ruling stands and the appointments were nullified, the results would be that all the actions since the members were on the board would be voided.

Critics of the CFPB have said that ruling would apply to Cordray and void any actions and regulations that he put forth as well.

Since then, the Senate worked out an agreement to confirm President Obama’s executive nominations. However, the lawsuit on the recess appointments has been appealed and headed to the Supreme Court of the United States.

There still is a pending lawsuit filed by State National Bank of Big Spring, Texas, against the CFPB. The bank, along with two organizations, is challenging the constitutionality of the agency.

Two Agreements Yield Very Different Results



When agreements were drafted in the past, payday lenders may not have paid a lot of attention to the design and layout of the form. But in some cases, the attention to the design can be important to the very enforcement of some of the agreement’s previsions.

Recently, two very different agreement layouts resulted in contrasting enforcement outcomes.

Two check cashing corporations operated a company engaged in delayed deposit check cashing. The payday lender was licensed in Mississippi and governed by the Mississippi Check Cashers Act.

A number of payday loan transactions took place in Clarke County and Newton County, Miss. In Clark County, 20 customers contracted with the lender for cash advance services. Twelve customers did the same in Newton County.

Both sets of customers signed one of two specific agreements with the lender.

The first version of the agreement was signed by eight of the 32 customers. It was one page, front and back, with a variety of font sizes, and was the older of the two agreements; it was last revised on April 12, 2001.

The remaining 24 customers signed the second agreement, which appeared to have been created on May 31, 2005. The entire second agreement was contained on one side of a single page.

Apart from the transactional terms listed at the top of the page and the eight bolded headings, the text of the agreement was essentially uniform in size and style. Each agreement also contained an arbitration provision. But the wording and style of the provisions were noticeably differed.

Two Lawsuits

The two groups of customers filed separate lawsuits, one in Clarke County, the other in Newton County. They claimed the lender had fraudulently represented the terms of its service charges and fees and exhibited a pattern of “predatory lending,” trapping the customers in a never-ending cycle of debt repayment.

Both suits alleged the lender had (1) breached the covenant of good faith and fair dealing; (2) negligently handled the customers’ accounts; (3) caused the customers to suffer emotional distress and mental anguish, (4) negligently hired, trained, and supervised its employees; and (5) fraudulently misrepresented the terms of the service charges and fees.

Citing the arbitration provisions in the two delayed deposit agreements, the lender filed a motion to compel arbitration in each case.

But the Clarke County Court entered a written order denying the lender’s motion to compel, finding the two arbitration provisions procedurally and substantively unconscionable.

The Newton County Court followed suit and also denied arbitration.

The Newton County Court “piggy backed” the Clarke County Court’s specific reasoning for denying arbitration.

The lender then appealed the denial of arbitration in both cases to the Mississippi Court of Appeals, and the Appeals Court consolidated the two cases on appeal.

Because the grant or denial of a motion to compel arbitration raises an issue of law, the Appeals Court review is from a fresh point of view.

According to the Federal Arbitration Act, arbitration agreements shall be valid, irrevocable and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract. Doubts about the availability of arbitration must be resolved in favor of arbitration.

Does the FAA Apply?

Because the customers challenged the applicability of the FAA, the Appeals Court said it must first determine if the FAA applied to the arbitration provisions in the delayed deposit agreement.

The FAA governs the arbitrability of contracts evidencing a transaction involving commerce, and Mississippi has endorsed the undisputed dominion of the FAA, recognizing that it controls those agreements formed in interstate commerce in which a contractual provision provides for alternative dispute resolution.

Concerning the applicability of the FAA to these particular contracts in dispute, the Appeals Court said its threshold determination is whether the delayed deposit agreements between the lender and the customers “involve commerce” and thus fall within section 2 of the FAA.

Here, the customers argued that the circuit court incorrectly found the FAA applied to what they deem were wholly intrastate contracts.

As they saw it, because all parties were Mississippi residents, the delayed deposit agreements were not contracts “evidencing a transaction involving commerce.” The Appeals Court disagreed.

The court noted that, there must be some involvement with commerce, but it need not be substantial in each particular transaction.

The United States Supreme Court has interpreted the phrase “involving commerce” within section 2 of the FAA as the “functional equivalent” of “affecting commerce.” And the requisite connection for FAA governance of a contract’s arbitrability is met if in the aggregate the economic activity in question would represent a general practice subject to federal control.

Banking and related financial activities are of profound local concern. Nonetheless, it does not follow that these same activities lack important interstate attributes.
Thus, for purposes of application of the FAA, when assessing whether the contract involves commerce, only the “general practice need bear on interstate commerce in a substantial way.”

Specifically, said the Appeals Court, in the context of payday loan contracts between licensed check cashers and their customers, the Mississippi Supreme Court has previously found a sufficient connection to interstate commerce, partly based on the transactions being subject to the Truth in Lending Act.

The second delayed deposit agreement cited the FAA and noted that certain disclosures were made in accordance with the Truth in Lending Act. Although the first agreement lacked a similar expression, it disclosed the same information as the second.

Still, noted the Appeals Court, regardless of whether the particular federal protective regulations were cited, because the lender — a lender of money to consumers — must operate in accordance with the Truth in Lending Act, its lending activities involve commerce.

When viewed in the aggregate, the Appeals Court found that the general check cashing services performed by the lender affected interstate commerce. Therefore, the circuit judges correctly held that the FAA applied to both arbitration provisions.

External Legal Constraints

Having found the FAA applied, the Appeals Court said it next must decide if the motion to compel arbitration was properly denied as substantively and procedurally unconscionable.

The Appeals Court said its review would begin with a two pronged test focusing on the specific arbitration agreements and whether legal constraints external to the agreements bar arbitration.

Under the first prong, there are two considerations: (1) whether there is a valid arbitration agreement and (2) whether the parties’ dispute is within the scope of the arbitration agreement.

Under the second prong, the court would decide whether legal constraints external to the parties’ agreement bars arbitration of the claims. To evaluate if such legal constraints exist, courts generally should apply ordinary state law principles that govern the formation of contracts.

The Appeals Court said it agreed with the circuit judges that the disputes were within the scope of the arbitration agreements.

But whereas the circuit judges found the provisions substantively and procedural unconscionable under the first prong, the Appeals Court said that it was more appropriate to address these state law based external legal constraints, which, if applicable, would preclude abritrability under the second prong.


Unconscionability has been defined as an absence of meaningful choice on the part of one of the parties together with contract terms that are unreasonably favorable to the other party.

There are two recognized types of unconscionability, said the court, “procedural and substantive.” Here, the circuit judges found the two arbitration provisions were both procedurally and substantively unconscionable.

In reviewing these findings, the Appeals Court pointed out the differences between procedural and substantive unconscionability.

Procedural unconscionability may be proved by showing a lack of knowledge, lack of voluntariness, inconspicuous print, the use of complex legalistic language, disparity in sophistication or bargaining power of the parties, and/or a lack of opportunity to study the contract and inquire about the contract terms.

Procedural unconscionability is most strongly shown in contracts of adhesion or more commonly known as a “take it or leave it contract.”

Substantive unconscionability, on the other hand, may be found when the terms of the contract are of such an oppressive character as to be unconscionable.

Substantive unconscionability is present when there is a one sided agreement whereby one party is deprived of all the benefits of the agreement or left without a remedy for another party’s nonperformance or breach.

First Agreement

The Appeals Court noted that the first delayed deposit agreement was signed by eight of the 32 customers. It is one page, front and back, and is entitled “Agreement.”

The front page lists the basic terms of the contract, including the annual percentage rate, finance charge, amount financed, and total amount owed. The front of the page also provides signature lines for the customer and the lender’s employee to sign, acknowledging their acceptance of the agreement’s terms.

The back of the page lists additional terms, including the arbitration provision. These additional terms are in paragraph form, but there are no separate headings, no bolded words, no capitalized words, and no distinguishable provisions.

The print used on the back page is smaller than on the front. The arbitration clause, which is found in the fifth of these nine nondescript, small print, back page paragraphs, states:

“Any controversy or claim arising out of or relating to this contract, or the breach thereof, shall be settled by arbitration administered by the American Arbitration Association (AAA) and judgment on the award rendered by the arbitration may be entered in any court having jurisdiction thereof.”

The Clarke County judge noted the arbitration clause was intermingled with other non-distinguishable provisions and that it did not even distinguish the paragraph with the arbitration language as an Arbitration Provision.

There was nothing in that first contract that would draw the readers’ attention to the arbitration language, nor was the paragraph highlighted from the rest of the text.

Furthermore, the Clark County judge labeled the agreement one of “adhesion” or lopsided bargaining power because the lender had offered it to the customers on a “take it or leave it” basis, with no real opportunity to bargain about its terms. Both judges found the first arbitration provision was procedurally unconscionable.