A consumer cashing six $150 personal checks per year at a check cashing outlet would pay an average of$84
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Washington, D. C.– Fees charged by neighborhood check cashers to tum paychecks and government benefit checks into cash have risen sharply in the last ten years, according to a report released today by Consumer Federation of America. In addition to cashing checks for a percentage of face value, check cashers in some cities have begun making short-term loans, charging annual interest rates of261% to 913% to advance cash for two weeks on post-dated personal checks (“payday loans”).
“The bankless and underbankcd pay a very high price for the convenience of services sold by check cashing outlets,” stated Jean Ann Fox, CFA Director of Consumer Protection. “No area of financial services is in greater need of effective consumer protections.”
CFA surveyed 111 check cashing outlets in twenty-three of the largest urban areas of the country, asking for information on the cost to cash payroll, government and personal checks. As Table 1 shows, the telephone survey found:
The average cost of cashing a paycheck was 2.34%, with a range of 1% to 6%. That means it costs $7.49 on average to cash a $320 paycheck. The fee can cost as much as $. The annual cost of cashing fifty $320 paychecks averages $, with a range from $160 to $960.
The average cost to cash a Social Security check was 2.21% of the check, with a range of .8% to 6%. That means it costs an average of $ to cash a $500 Social Security check, with a range from $4 to $30. The annual cost of cashing twelve $500 Social Security checks averages $132, with a range from $48 to $360 a year.
The average cost of cashing a personal check was 9.36% or $ for a $150 check. The range of fees for personal checks was 1.85% to 16%, or $2.77 to $24 for this check.
Compared to ten years ago (1987) when CFA first surveyed check cashers, the average cost of cashing paychecks has increased 44% while the cost of cashing Social Security checks has risen 37%. The average cost of cashing personal checks more than doubled.
The ranks of check cashers has grown from 2,151 outlets in 1986 to 5,400 today according the National Check Casher Association. The industry currently cashes 150 million checks a year worth $45 billion. Check cashing is also profitable. An Illinois study found that check cashers in that state racked up a 104% return on investment from 1988 to 1991.
Eighteen states regulate check cashers, and only twelve of these states cap fees. Those states are California, Connecticut, Delaware, Florida, Georgia, Illinois, Indiana, Minnesota, New Jersey, New York, Ohio are online payday loans legal in Colorado and Rhode Island. Fee caps are as low as 90 cents for welfare checks in New Jersey to a high of 10% for checks in Indiana. The highest rate found by CFA in unregulated states was 6% for a payroll or government check and 16% for a personal check.
