Florida Lawmakers Tackle Check Cashing Ties to Workers’ Comp Fraud

By | February 1, 2012

Florida lawmakers are looking to give regulators and law enforcement officials more flexibility to investigate check cashing companies that may be facilitating fraud in the construction industry.

The House Subcommittee on Insurance and Banking yesterday approved HB 1277, sponsored by Rep. Daniel Davis (R-Jacksonville), which is designed to rein-in the use of checking cashing companies by individuals seeking to avoid paying workers’ compensation premiums.

Among other things, the bill eliminates a current law that requires state regulators to give check cashing firms 15-days advance notice before conducting an examination of their records. While retaining a current requirement that all firms undergo an examination every five years, it eliminates a requirement that regulators must conduct an exam within six months of a firm’s licensing.

The bill also requires that a check cashing company deposit all cashed checks into a single commercial account at a federal insured financial institution. The ability of companies to cash third-party checks would also be eliminated.

“There are a small minority in the industry that are trying to get around the law,” said Davis. “This bill will help weed out the bad players.”

Based on the recommendations of Money Service Business Facilitated – Workers’ Compensation Work Group established last year by Chief Financial Officer Jeff Atwater, the bill affects the 1,065 licensed check cashing businesses that operate in the state.

Law enforcement officials say a typical fraudulent scheme includes an individual who sets up a shell company that obtains a certificate of insurance from an agent by purchasing a minimal workers’ compensation policy.

The individual then allows subcontractors to in effect “rent” the certificate to show general contractors so they will be hired. Once the work is complete, the general contractor cuts a check to the shell company. The individual running the shell company then goes to a check cashing company, which cashes the check for a fee of up to two percent. The shell company usually collects three to eight percent for use of the certificate and the subcontractors’ workers are paid in cash.

Florida Carpenter Regional Council representative Minguel Fuentes said the bill is needed to help create a level playing field for honest contractors who too often are being outbid by contractors who use checking cashing firms to avoid paying workers’ compensation premiums.

“Cash in the construction industry is rampant throughout the state of Florida,” said Fuentes. “It is an enormous problem and this bill is a good step forward.”

Although the bill is based on the recommendations of a state working group charged with examining the check cashing industry’s role in workers’ compensation fraud, it doesn’t break any new ground.

“Basically, we’re helping people trying to enforce regulators do so in a more expiated fashion,” said Davis.

Other working group recommendations had called for the creation of a statewide real-time data base for checking cashing transactions above $1,000.

The working group also called for check cashing companies to collect the workers’ compensation policy number of the corporations they cash checks for and provide them to the state. That would have allowed regulators to compare the payroll amounts to the amount of coverage the corporation has purchased.

The working group also called for certificates of insurance to be issued by insurance companies as opposed to insurance agents, as is currently the practice in the state. The move was opposed by the industry on the grounds the administrative cost of doing so would be prohibitive.

Davis said HB 1277 is just a first step and there are plans to establish a second working group to specifically look at the issue of how certificates of insurance are generated and provided to contractors.

“This is phase one,” Davis said about the bill. “We plan to quickly move to the next phase and address certification issues.”

Was this article valuable?

Here are more articles you may enjoy.