Capital One Financial (COF) is terminating its accounts with check-cashing stores, the latest sign that some banks are becoming pickier about their customers in the face of stepped-up scrutiny by federal regulators.
Capital One spokeswoman Tatiana Stead confirmed the company's decision Tuesday in response to questions from American Banker, a Collections & Credit Risk sister publication. The company will no longer provide commercial banking services to "check cashers and related businesses," she said. She declined to say whether payday lenders are among the other companies that are being terminated.
"We consistently review business plans and initiatives across the company to ensure that they are aligned with our strategic goals and future plans," Stead said in an email. "We took a range of factors into consideration and determined that this business no longer fits within the bank's strategic priorities."
Capital One would not comment on whether changes in the regulatory environment contributed to its decision. But representatives of the check-cashing and payday loan industries see the move as part of a broader trend they're calling it "bank discontinuance" in which banks are exiting businesses that they believe have fallen into disfavor with their regulators.
In a recent submission to a congressional committee, the Financial Service Centers of America, a trade group that represents check cashers and payday lenders, listed several other banks that it says have terminated their relationships with at least one of its member companies in recent months. Banks on the list include Fifth Third Bancorp (FITB), Bank of America (BAC) , PNC Financial Services Group (PNC), Wells Fargo (WFC) and U.S. Bancorp (USB).
Wells, Bank of America and PNC declined to comment on the trade group's submission to the congressional panel. Officials at Fifth Third and U.S. Bancorp had no immediate comment.
Some of the banks that have been terminating these accounts are asserting that the affected companies, including state-licensed payday lenders and check cashers, present a high risk, according to the Financial Service Centers of America.
"Not only do they not define the risk, but their conclusions are unsupported by facts, and, we believe, simply a smokescreen for succumbing to regulator pressure related to the products these companies offer," the trade group wrote.
Before Capital One decided to stop doing business with check cashers, the McLean, Va.-based firm was serving approximately half of the 150 licensed check cashing companies in New York state, according to the Financial Service Centers of America.
"Our members are in the process of moving to other banks," Edward D'Alessio, executive director of Financial Service Centers of America, said in an interview. "Some of them are going to land. Some of them are not going to land."
Capital One's decision comes as the Department of Justice has been investigating banks' relationships with online payday lenders in a probe that it calls Operation Choke Point. The DOJ says that it is focused on fraudsters, not legally operating companies.
At the same time, federal banking agencies have been stepping up their scrutiny of banks' relationships with merchants that they see as posing elevated risks because they may have a higher incidence of consumer fraud.
It's unclear to what extent the trend is being driven by the specific words and actions of banking regulators, and to what extent it's the result of banks making their own judgments about the regulators' views.
The Financial Service Centers of America recently commissioned a survey of its members about bank discontinuance. The survey, conducted by Deloitte Financial Advisory Services, found that 14 of the 61 banking relationships reported by survey participants have been terminated since November 2013. Another seven of the 61 relationships were terminated between August 2011 and late last year.