Eight check-cashing offices in South Central Los Angeles closed last week by the state were reopened Thursday with the promise that $2.7 million in outstanding money orders would be honored.
The new owners, Continental Currency Services, bought the insolvent business from state banking authorities and agreed to honor an estimated 30,000 outstanding money orders issued by the previous operators.
State banking officials closed the offices last Friday after an audit discovered that the firm operating them, American Security Financial Group, was insolvent. Authorities initially estimated that American Security could not honor $2.3 million in money orders purchased primarily by low-income residents of the area. The figure was later increased to $2.7 million.
"This is like a Christmas miracle for the holders of American Security money orders," said Howard Gould, the state superintendent of banks.
Continental Currency, which also operates the largest independent money-order company in Southern California, agreed to purchase the business after negotiations with banking authorities that concluded at 4 a.m. Thursday. The purchase price was not revealed.
The negotiations also involved county supervisors and officials from the county's Social Services Department, who expedited approval for Continental Currency to issue food stamps from the offices.
As a key part of the agreement, Continental Currency's president, Fred Kunik, said the firm would honor all outstanding American Security money orders at the eight locations or any of Continental Currency's other 24 offices in Los Angeles and Orange County. Kunik said the orders must be brought to the offices.
Check-cashing offices play a central role in the financial structure of low-income neighborhoods, where residents frequently do not have bank checking accounts. They are licensed and regulated by the state.
The eight locations serve approximately 40,000 customers a month, cashing checks, distributing food stamps and selling money orders. The money orders are often used for such essentials as paying rent and utility bills.
State authorities had been concerned that American Security's insolvency would leave people who had bought its money orders unable to pay their bills when the money orders were returned by landlords and utilities.
Banking authorities said fraud may have played a "significant role" in the failure of American Security Financial Group. They said the matter had been referred to the attorney general's office.