NCUA Enables Nix
Tom Nix, founder of Nix Check Cashing, credited the NCUA in his latest book for the successful sale of his alternative financial services business to the $3.1 billion Kinecta Federal Credit Union in Manhattan Beach, Calif., after failed attempts to sell it to banks.
The NCUA told CU Times the agency had no objections to the sale when approached by Kinecta about it in 2007.
Nix detailed his experiences with Nix Check Cashing, the largest check cashing chain in Southern California, in his new book, “Nixland: My Wild Ride in the Inner City Check Cashing Industry.” Despite armed robberies, L.A. riots and threats from the Chicago mob, Nix was able to expand the business to approximately 400,000 customer transactions per month from 55 locations.
“There's a real need for convenient banking services in these underserved communities,” Nix said in an interview with CU Times. “The only way to really make it happen is to create a profitable model for them. If you have an unprofitable business model, you’re not going to be able to expand it,” Nix said.
“The NCUA realized you can open all of the credit unions you want in the inner city but no one is coming in there because it doesn't send a message that it's available to people,” Nix said.
“The notion is a credit union is typically designed for employees of a company – that's basically how it's been until they created these new ways to do business with them. So, it was natural to put a credit union inside a check cashing facility and create that full spectrum of choice for consumers,” he added.
Ben Hardaway, communications specialist at the NCUA, said, “Kinecta approached the agency with a business case for purchasing Nix Check Cashing. The agency reviewed the purchase and ultimately had no objections to it going forward.”
Meanwhile, William Myers, director of NCUA's Office of Small Credit Union Initiatives, said there are many credit unions active and successful in low-income neighborhoods.
“Often these institutions show faster growth rates than comparable credit unions that operate outside of these communities. They do this by offering products similar to those used by the unbanked or underbanked individuals: Payday alternative loans, checking cashing services, tax preparation and international remittances,” Myers said.
“Low-income credit unions have been able to strike right the balance between offering low-cost financial services and products and keeping the credit union financial sustainable,” he said.
JoAnn Johnson, supervisor of the Iowa Division of Credit Unions JoAnn Johnson, who was NCUA board chairman when the sale was approved, was not available for comment.
In March of 2004, Nix said he was excited to open a new Union Bank branch with a Nix Check Cashing and Operation Hope, a nonprofit banking organization, in the same building.
According to its official website, Operation Hope has served more than 2 million individuals since 1992 and directed more than $1.5 billion in private capital to Americas low-wealth communities.
“We were 100% inspired to launch this new business model. This new hybrid branch would change the world for underserved communities,” Nix wrote.
“We were becoming part of the fabric of Union Bank and would undoubtedly be a division of the bank soon. Or so we thought,” he added.
Later in the same month, the Office of the Comptroller of Currency refused to grant permission for Union Bank to purchase Nix Check Cashing.
“The OCC's decision ensured that no bank would ever duplicate the experience Union Bank had with Nix Check Cashing, and made it harder for people in these communities to access traditional banking services and begin moving up the financial later,” Nix wrote in his book.
“It was a crying shame! We could have changed America, and it was terribly disappointing to have been refused the opportunity to do so,” he also wrote.
Nix shifted his strategy and decided to approach a wide number of interested parties from private equity firms to strategic buyers about purchasing his company.
“Our objective was to achieve the highest price with the best fit,” he said.
Nix recalled having many interested buyers, including a Hispanic-market targeted bank that was still in the process of their formation.
“The initial valuations from them and the other buyers were quite low; the ‘fit’ was better, but the price was not. So then we placed our marketing efforts on strategic buyers, mostly financial institutions,” he wrote.
“However, most of the institutions ended up not being interested (mainly due to the regulatory concerns we encountered in our dealings with Union Bank),” Nix said.
On June 17, 2007, Paul Irving, a member of Operation Hope's Board of Directors, suggested that Nix speak with Kinecta.
Irving said Kinecta CEO Simone Lagomarsino told him the NCUA was “encouraging credit unions to begin providing services in low-income communities and the Kinecta board of directors wanted to buy a check cashing company as a way to penetrate the underserved market.”
According to Irving, Lagomarsino knew all about Nix Check Cashing but was unaware the business was for sale.
Nix met with Kinecta executives on June 21, 2007, and left with the impression there was a perfect fit.
Kinecta approached the NCUA and received a “verbal green light” for the purchase, according to Nix. “Finally, on July 11, 2007, Kinecta agreed to pay $45 million for Nix Check Cashing, a price far above what I had hoped for,” Nix wrote. “Kinecta's purchase of Nix was the first significant acquisition of a check cashier by a credit union. It was thrilling.”
Looking back, Nix said he was surprised to find a regulated industry that was willing to move forward after his experience with Union Bank.
“That was definitely a fair price because we had other bidders, but they were industry players and I didn't really want to sell to another check cashing firm after being in business for 42 years because that's a consolidation model,” Nix told CU Times.
“They can pay a good price for it because they’re going to reduce costs like crazy. I felt we had a much different type of operation than most of the check cashing companies because we were so focused on being an integral part of the community and I certainly didn't want to have a bunch of my employees terminated after being with me for many years and helping me grow the business.”