I recently moved into a town with a “really nice” section and a “nice but not great” section. In the latter are a number of storefronts with big, garish signs proclaiming that they cash checks. I assume they charge a fairly hefty fee for this service–if they survive solely on these commissions.
Why would anyone go to one of these? I’m a student with a very low income (though I live with my parents), and I have a checking account at a large bank. The account is free; I pay for new checks, but that’s a one-time cost, and I hardly use any anyway. If it’s this easy to get a checking account, and deposit your paycheck every fortnight, why would someone pay a private service to do that? I suppose if you don’t even have enough money to cover your expenses until the check clears it might be necessary; but $100 of any deposit becomes immediately accessible at my bank, for instance.
There are a lot of these places. What do they do, exactly? Why? For whom?
For a lot of people, their accounts must have a period of time between the moment they deposit a cheque and the time that the banks makes those funds available. I have heard that it can be up to five days for processing. So if someone needs to have cash in hand right away, unfortunately these are the options.
AFAIK these places also offer payday cash advances. The intrest is high and there are also very high processing fees. All told with the fees and intrests, the cost of borrowing is criminal. Around here there is a drive to regulate this industry but the action is rather slow. Presence of these places are a good indicator of decline and local residents would do well for themselves to prevent these places from invading their neighbourhood.
There is a segment of the population that doesn’t want any potential scrutity from using a bank such as aliens of questionable documentation. For others it may be a matter of convenience. Banks are normally open during business hours and check cashing places open late.
You need to have valid ID and ususally be a legal resident in order to set up a checking account. Many users of such are not legal residents- they have no "green card’ and not very good ID>
Also, when Foriegn residents send $$ home (and they send home a LOT) they must send cash Wire or MO. No personal checks. Check cashers also sell MO and do Wire- and as cheap as possible. Banks charge outrageous amounts to do either.
Most check cashers charge about 1>3% of the check cashed. If you have a $500/wk payroll check, and also want to buy MO etc, they aren’t a bad way to go. “One stop”.
They also cater to dudes with illegal income, who don’t want the IRS to be able to find their checking account & amount of depsoits. Sometimes they are used by those who have creditors who will garnish any bank account. They are also a place of Illegal Money Laundering.
Let’s say “John Doe” does some work on the side, tells his customers that his name is “James Smith,” and said customers make out their personal checks to James Smith. Doe then cashes the checks and pockets Uncle Sam’s share.
If you’ve never had an account, banks don’t want to deal with you. I had a friend who couldn’t even open up a saving account in New York. You probably opened up your account at the same bank as your parents and they served as a reference.
I’ve used check cashing places before. I don’t remember the rate, but it was very high. Sometimes it’s the only way to cash a check.
I’m trying to stay out of debate mode, but I may not succeed. I apologize, and I know it’s somewhat off topic from the OP.
“Payday loan” or “cash advance” companies are not inherently bad. The idea is that they will cash a check for the customer and hold it, for a fee, until the customer’s next payday (in most U.S. states this can’t be more than 2 weeks away). When compared to the cost of bouncing a check with most banks, they can be an ok way to avoid 4 or 5 $30 fees for insufficient funds (I balance my checkbook to avoid this situation, but I have miscalcuated at times and needed to transfer funds from my checking account pretty quickly - I have that option though). Here in the states, the fees are usually somewhere around $15 per hundred - some states allow a more, some less and some don’t regulate at all. For the customer who goes in once, then pays the check off and never goes again, the payday loan company has provided a service. Oh, they may come back a year or two down the line if a miscalculation happens again, but they may never come back.
The problem comes when the company doesn’t encourage the customer to pay off the loan - instead allowing the loan to be “rolled over” by paying just the fee on the loan, or not telling the customer that the loan can be paid down (and most of the companies should have a way to do this). Now, the company doesn’t make as much money when they do this, so it’s not necessarily encouraged. These customers that “roll over” the loans repeatedly are the bread and butter of the industry - they typically have more than one loan out at several different companies, and they can barely pay the fees each week. On top of that, they typically don’t have the credit rating to go to the bank and get a loan, or a credit card.
I still haven’t decided what my real position on this industry is - I worked for one payday loan company for several years. While I was in the industry, I was excellent at spouting the company line. As I’ve moved further away from that industry, my opinion has become more negative.
Oh, and Brendan Donovan, according to your link:
I don’t doubt that it’s correct, but 60% seems very low for the payday loan industry - I realize that any existing Canadian laws regarding loans may be significantly different, but…the figures I remember (based on what the interest rate would be if the loan was renewed every two weeks for a one-year period) were…several multiples of that number, and that was with no late fees, returned check fees or the like.
Dopers: have you found this to be true? I simply walked into my local Fleet branch with 30 dollars and a high school ID, and they set up a savings account for me. A year later I upgraded it to a checking account, with simply a little bit of paperwork. Why would a bank want to turn down potential customers?
Most banks run a credit check when you try to open an account. Many people who rely on check-cashing outlets don’t have the credit to open even a simple savings account. Many of these people also don’t work for companies that offer direct deposit, which is the easiest way to get a bank to look the other way on credit.
It’s also possible to get “blacklisted” from banks, at least according to a book called The Broke Diaries that I read. Banks apparently share some kind of system where if you misbehave at one, they can all find out about it, so you can’t open a checking account at any of them. Though it may be inaccurate, it wouldn’t surprise me. Can’t remember the name of it.
And I had to use one once. I had a rather substantial check (to my retail wage-slave eyes) I was going to use to buy a car. I needed the money accessible in some form. I talked to the bank teller and my account was new, so they were holding any large deposits for like a week, then it may take up to two weeks to clear, and on and on. It would’ve been something like a month before the money showed up in my account.
Also keep in mind that some of these poorer areas of town won’t have as many bank branches as better areas – oftentimes the nearest branch is very inconvenient for low-income people, particularly if they don’t own an automobile. Add to that that low-income people are also lower on their employers’ totem poles and find it harder to get to a bank while it’s open.
This is getting a little better, as banks rediscover the value of retail deposits (which are lower cost than brokered deposits such as jumbo CDs, but only if losses and operating costs are low) – Chevy Chase has branches in supermarkets in Prince George’s County, Maryland, for example. And of course 24-hour (bank-owned) ATMs mitigate the problem of hitting a branch while it’s open.
I walked into Washington Trust at age 17 and got a checking account (with debit card), no problem. All I needed was a check and a driver’s license. My parents didn’t have to co-sign, and the only other bank account I’d ever had was a savings account in another state, about 10 years earlier.
You are right. I have a link to a report that claims rates over 1000% I am not kidding. It should be noted that rates in Canada must include TOTAL cost of borrowing including late fees and other administraive/punative costs. I recall something similar for American lending laws. Any legal diferences between our nations are likely minor.
I understand that many people view this as a service but rates of this nature are not helping at all and will increase the debt pressure of the very people that are drawn to this. It is hard for me to believe that criminal laundering is a signifigant portion of this business.
Here is the link . be warned it is PDF and lengthy but it is good.
I suggest that the difference between operation in Canada and the US is 1, the number of people using then and that 2, frequency of use is a function of availability because AFS spead first and faster in the US.
I go to a “check-cashing place”, but it’s in a regular part of town and I go there only to pay my utility bills. Nearly all utility companies have closed their local offices and I don’t like mailing my payments.
The fees they charge can be stiff, and as Lsura noted, there are opertunities for abuse, but they do provide a needed service.
Every so often, politicians will take aim at the industry. When they do, the people who these companies serve often object, because if the business is outlawed, the customers have few if any other options.
I also am trying to stay away from debate mode but I must say that as for the political action against the Alternate Financial Sector (AFS) that BrotherCadfael aludes to, I think their effort is mis-directed. A firm regulatory respose to cease predatory practices of these institutions and an effort to incorporate their customers into mainstream banking is much more productive. I do not suggest that AFS be eliminated. They do have some neat services but things don’t get better when these become the primary institution for some people.
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Hermann**, Why do you pay your bills at one of these places? Is it so much cheaper than stamps or even paying on-line? Is it that you do not have a chequing account?
BTW wasn’t there something about this on Oprah last week? A couple in financial crisis was using this and it was just killing them. I’m not sure of the details.