"We have identified 300 to 400 customers who regularly use payday advances, some returning every couple of weeks, and one of our objectives is to help them get out of that cycle," Pipes said.

"What we offer is a 50% rebate on their financing fee, which we will deposit into a Wescom account if they become a member."

Members are given access to the funds after six months of membership. The idea, Pipes said, is to build up a savings account balance that equals the customer's typical payday advance amount, in order to break the borrowing cycle.

In September, Wescom also developed credit union product and service materials that specifically appeal to ACCC customers, in an attempt to recruit new members. For example, remittances to Mexico are one popular service at ACCC, so the credit union is promoting its Direct to Mexico program, which is free to Wescom members.

Though the credit union will attempt to woo check-cashing customers to credit union membership, Pipes said he thinks there will always be a demand for quick-cash services like those offered at ACCC. "I think we have to admit that some people just aren't comfortable in a branch environment, and prefer a less formal check-cashing store front," Pipes said.

"And conversely, some of our members may not feel comfortable standing in a teller line with people who prefer the check-cashing environment. It's a real challenge to expand your market and the ways you serve your community, without jeopardizing the relationship you have with your core member base."

Kinecta Federal Credit Union, meanwhile, released the jaw-dropping news that it had purchased Carson, California-based Nix Check Cashing in August for approximately $45 million. Nix was the largest independent check- cashing chain in Los Angeles, with 55 retail locations.

The acquisition met two credit union directives: to increase business in underserved areas, and to expand the credit union's branching network. The credit union will more than triple its brick-and-mortar presence once all 55 Nix locations are converted to Kinecta branches.

First on Nix's to-do list in August was the conversion of its payday loan product into a credit union loan, extending repayment terms and adjusting rates and fees. Because the payday advance is a credit union product, users must first join the credit union, which they've done to the tune of 12,000 new members by the end of November.

Though Kinecta first acquired Nix as a CUSO, the credit union is slowly transitioning the operation into a credit union division, which is scheduled for early January.

Before the credit union can begin marketing membership to Nix customers, existing ATMs must be converted to Kinecta ATMs. Nix had an ATM agreement already in place with Union Bank of California.

The credit union is currently undergoing the conversion, and according to senior vice president of Kinecta Alternative Financial Solutions, Randy Dotemoto, the cooperative successfully converted 36 ATMs in 35 business days.

"In these underserved communities, convenience is an issue, and having depository ATMs for our members was key," Dotemoto said.

Kinecta will also begin marketing credit union membership to Nix customers in January. As for how well Nix customers will embrace traditional financial services, Dotemoto said data shows members who joined for payday advances have added additional Kinecta products and services without any cross-selling.

Kinecta President/CEO Simone Lagomarsino said Nix differs from its competition in its philosophy, which is more in-line with credit union values than those of stereotypical payday lenders. Rates and fees charged to payday lending customers are much lower than those charged by the competition, she said.

Lagomarsino said she had known former Nix President/CEO Thomas Nix, Jr. for years, as both leaders were actively involved in a common charity. The credit union leader said she wasn't aware Nix was looking for a banking partnership until one of Kinecta's attorneys mentioned it. The deal moved quickly, with the two CEOs first meeting to discuss the merger only a few months before the deal went through.

"Tom has taken a very strong position to help regulate the check cashing industry," Lagomarsino said. "I've always thought he was a man of integrity and high ethics, and that was important to me as we went down this road."

In fact, Nix has a reputation in Los Angeles as a champion of the underserved, and has been recognized by publications and civic leaders for his work. Los Angeles community leaders, including former police chief and current Los Angeles City Councilman Bernard Parks, and Inglewood Mayor Roosevelt Dorn, praised the Kinecta-Nix merger as an opportunity for the underserved to become mainstream banking customers.

Nix said he's seen many of his customers improve their financial standing and move into the ranks of mainstream banking customers. Because so many banks have pulled out of poor Los Angeles neighborhoods, however, mainstream banking is often not convenient for those who live there.

"Our customers will be able to open a credit union savings account and have a safe place to store their money," Nix said. "They can continue to cash their checks and pay bills with the free money orders we provide, but when they're ready to open a traditional checking account, it will be convenient for them."

Strange Bedfellows?

Both credit unions agreed that the environment in check cashing locations is similar to that of credit unions, where tellers know members personally, sometimes outside of work.

"With payday advances, the risk is that the customer won't come back to pay it," Pipes said. "The interesting thing we've found is that this line of business really establishes personal relationships with customers. We know them by name, we greet them … it's really more of an affinity. So, based on that level of knowledge, we have a way of managing that risk because we know who our customers are."

Dotemoto, who was previously a Nix executive, agreed.

"There are tremendous similarities within these communities," Dotemoto said. "We have third generation customers — that's quite a statement. If we can hold on to customers through generations, just think how powerful that loyalty will be now that we have a full quiver of product offerings.

"Our "Kinecta For Life" motto is very fitting with these members. We can start at a transactional basis, servicing them from a check cashing level, but eventually get them into financial products and grow up the economic ladder with them."

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