ECSH51150 - Cheque casher - what you would expect to see at a compliance intervention

Cheque cashers offer an alternative to traditional banking systems and provide immediate cheque encashment, i.e., the customer is paid cash to the value of the cheque less a commission charge, and the cheque is banked by the cheque casher. The business accepts the risk that the cheque may not be honoured on presentation for payment. The most common type of cheques accepted are wage cheques. 

The records you are likely to see can vary depending on the type and size of the business.  However, it is usual to see the following documentation:

  • Customer’s ID.
  • Mandate forms.
  • Computerised customer account.
  • Daily summary records.
  • Statement from franchisor detailing cheques banked.
  • Banking records (for example bank statements).

In addition to start-up capital, someone setting up a cheque cashing business will require a substantial cash float to service their customer demand.

The Public Private Threat Update (PPTU) identifies the greatest risk faced by a cheque casher as deception by the customer. Cheques can be stolen and presented for payment or tampered with so that the name, date or amount payable is changed.

Information on cheque casher money laundering risks can be found here.

Cheque cashing can be a main or secondary business activity. You will find that generally cheque cashers fall into the following two categories.

  • Independent - These businesses will operate using their own bank account. The cheque cashing is usually ancillary to the main business activity (for example a jeweller or general store). The business has full autonomy over the types of cheques being cashed and therefore can present a higher risk of money laundering. Where there is dual business trading activity there will be a separate account for the cheque cashing side of the business.
  •  Franchise - Generally the business will follow the franchisor’s procedures and may offer additional services (such as the retail of second-hand goods, pawn broking, other financial products and currency exchange).



How does a cheque casher operate?

Cheque cashers generate income from the fee they charge for cashing the cheque. This can either be a % of the face value on the cheque, a fixed fee based on a sliding scale or a combination of the two. Rates of commission charged are usually in the range 5-8%.

The general process for cashing cheques is as follows:

  • Cheques are visually examined and where the drawer (person issuing the cheque) is not known to the business a credit check is usually performed using commercial software.
  • The payee’s entitlement to the cheque is then checked. This is done by obtaining ID for all new customers, and additionally, in some circumstances, by contacting the drawer. The most common form of ID obtained is photo (passport or driving licence) plus proof of address. However, some cheque cashers use a point scoring system where each piece of ID is allocated a score, and the transaction can only proceed if the overall score is above a certain limit. In addition to these checks the customer is usually required to complete a mandate form. Where the customer is presenting a wages cheque for encashment the business should ask to see the corresponding wages slip.
  • The customer and cheque details are then entered into the business records. The majority of cheque cashers use bespoke software to record this information, and some have the facility to take the customer’s photo and upload it onto the customer’s record. It is not uncommon for businesses to issue membership cards at this point, particularly if it is a franchise.  Even if a customer is issued with a membership card, the business must still comply with the customer due diligence (CDD) requirements under The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (MLR 2017) for ongoing monitoring.
  • The fee is then deducted from the face value of the cheque and the balance paid to the customer.  In some cases, the cheque casher may decide to make a partial payment or delay payment altogether until the cheque has been cleared using a special clearance facility.
  • The cheque is then paid either into the businesses own bank account or into the franchisor’s account. If it is paid into the franchisor’s account, the commission fee is split between the franchisor and the business.