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THE BUDGET CRISIS : Money Order 'Float' Catches Officials' Eye : Revenues: Companies would be required to turn over uncashed warrants sooner. The interest could total $20 million this year, but it would go to the state general fund instead of a bailout for customers of failed issuers.

August 20, 1992|AMY PYLE | TIMES STAFF WRITER

After two money order companies based in Southern California failed last year, leaving more than 125,000 people--most of them poor--holding worthless vouchers, state officials began searching for a way to create a bailout fund to repay future victims.

A source of several million dollars was identified in the "float," the interest earned on money order funds between the time they are bought and when they are redeemed.

A Los Angeles assemblywoman drafted a bill to tap that money to create the bailout fund but--faced with opposition and complications--she dropped the float provision from her bill, which has not yet passed, and turned to other forms of money order protection.

But in this desperately lean budget year, others apparently considered that float money too good to pass up.

Buried deep in state budget negotiations is a requirement that money order companies turn over the proceeds from uncashed vouchers in three years instead of being able to hold onto the proceeds, and collect interest, for seven years, as current laws allow.

The estimated $20 million that would be raised this year from that float, however, would go into the state's general fund, not a money order bailout fund.

Because the money order proposal is among the few items included in bills related to both the governor's and the Democrats' budget proposals, officials predict that it is likely to be part of the final budget package.

Money order companies are lobbying hard against the proposal and vowing to increase their fees to make up for the lost interest income if it passes. Vendors say they would have to pass that additional cost on to customers.

Both groups made the same threat when the bailout bill was discussed earlier in the year. But they point out that there is a difference: Under the bailout plan, customers would have been paying a little more to insure their investment. Under the budget proposal, they would pay those higher fees to help relieve the state's deficit.

"The state seems to be looking for money anywhere they can," said Mark Gorney, regional sales manager for Travelers Express, the nation's largest money order company. "But in this case, the poor guy is going to have to pay for it, which is sort of a tax . . . on the poor."

Backers of the budget proposal say it is part of a gradual evolution, which began with a reduction in the holding period from 15 to seven years in the mid-1970s. Some of the money raised will be just a loan to the state, said Edith Cantwell, legislative coordinator with the state controller's office, because her office will try to find the owners of the unclaimed money orders and reimburse them.

Similar holding period reductions are being proposed for traveler's checks and cashier's checks, which would increase the estimated one-time windfall to $36 million and the annual revenue to about $7.8 million, said Paige Vorhies, director of operations for the controller's unclaimed property division.

In recent years, money order companies have increasingly become banks for the poor, who find traditional bank accounts too expensive or too inconvenient, or who lack the Social Security number necessary to open an account. An estimated $45 million in money orders are sold daily in California, most of them for issuing fees of $1 or less.

As the failure of Los Angeles-based General Money Order Co. last December revealed, the vouchers are used to pay everything from rent to utility bills, and they often are sent out of the country to support relatives.

General Money Order Co. was closed by the California Department of Corporations last December after the company reported that its coffers had fallen at least $3 million short of paying off its outstanding money orders. Because investigations and audits of the company and its vendors are continuing, the more than 120,000 money order customers who filed reimbursement claims still have not been repaid.

Another Los Angeles-based company, Pan American, was seized in July, 1991, after state auditors discovered a bookkeeping mess. In that case, at least 5,000 holders of money orders waited more than a year to be reimbursed.

Jack Fullen, vice president for money orders at Travelers Express, said the budget proposal would force his firm to at least double the fees it charges money order vendors, which now range from 20 to 25 cents per voucher. He said the company could not absorb the loss.

"We are an industry that really operates on very thin margins," Fullen said.

Los Angeles merchants who sell money orders said that they would be forced to fold that increase into their charges. Most consider money orders a loss leader, which draw customers in for the more profitable transactions, such as liquor purchases or check-cashing services.

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