Check cashers, payday lenders, pawn shops...the scourge of financial services. What's a credit union to do to compete against these fringe players? Buy one of course. That's exactly what $3.9 billion Wescom Credit Union did recently.

Wescom purchased a check casher that has eight check cashing outlets in Southern California, perfect for Wescom's community charter. But does this match with the credit union philosophy? Is it smart for credit unions to get engaged in this business?

I think it's very smart, and here's why. These are booming businesses. AceExpress, the largest check casher, has 1,573 stores and surging revenue. The largest payday lender, Advance America, operates 2,900 stores nationwide. It opened 39 new outlets alone in the first three months of 2007. Its

revenue and profits have been increasing nicely for the last decade.

But because these businesses are booming is no reason to get into them. Credit unions shouldn't

do a deal with the devil just because the devil is doing well.

However, they're doing well because people need their services. These fringe players serve tens of millions of people a year who find their products and services useful.

The outfit Wescom bought, Area Check Cashing Centers, serves about 10,000 people, many of which are repeat customers. The average check cashed is $450. About half of the customers have accounts at financial institutions. The conventional wisdom has been that the fringe players are serving the 10 million unbanked out there, but not true, they serve a lot of people with existing accounts. (A recent study validated this yet again, see page 44.) The problem is these people need things a big bank and even many credit unions can't offer. A quick $200 loan can be the difference between making rent or not for these folks. Try walking into a big bank and getting that kind of loan quickly.

Obviously this column isn't about defending these fringe players because many are brutally gouging customers, but they wouldn't be growing the way they were if they weren't meeting a need. So the question is how can credit unions get involved to help meet that need? How can credit unions

do it better?

Wescom could have created a check cashing store, but buying an existing one gives them an immediate presence with established customers. ACC is not an egregious fringe lender. Approximately 70% of its business is check cashing, with only 20% payday lending. For check cashing, it charges a 2% fee, which is the going rate in the very competitive check cashing market in Southern California.

The key will be how Wescom handles this new venture. I know from some talks with CEO Darren Williams the CU will not try to brand ACC outlets with Wescom. Bravo. While I love promoting the credit union difference, taking down the ACC logo at this stage and putting up Wescom would send a very bad message to existing Wescom members and confuse ACC's existing customer base. No, Wescom isn't going to beat them over the head with their name, but it is going to make them aware of the credit union.

Wescom plans to offer an alternative product to ACC's typical payday loan, where Wescom will place a percentage of the payday lending fee in a Wescom savings account. Say for example the customer was going to pay a $45 fee, they would still pay that but $20 of it would go into a savings account at Wescom. Wescom will of course waive the new member fee. This gets the customer to think about saving, even a very little, and wakes them up to Wescom's

credit union services.

There's a bigger reason why credit unions should follow Wescom's lead. This opens up a whole new member base. Membership growth is stagnant, why not start a revolution and begin turning check cashing and payday lending clients into the biggest pool of new credit union members. You don't want to deal with the devil, but dancing with him to learn how to one up him is what credit unions can do here with fringe lenders. Let's convert these customers one by one.

Another good offshoot is the other services players like ACC provide, remittance for example. They help people send money back to Mexico using Western Union for an average fee of $39. Wescom offers a remittance program that allows members to ACH money back to Mexico for free using the Central Bank of Mexico. For products like this, Wescom can have an immediate positive impact.

As far as the headline for this column, heck there's an association for everything else in credit unions, what's one more?

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