Finance on the Fringe: America's check cashers don't exploit the poor; they serve them

Reason, April, 2002 by Michael W. Lynch

Protesting Profits

Cashing checks accounts for 65 percent of Consiglio's cash flow, and it's the core service that brings in customers, who cash a total of around $500,000 a week. He charges 2 percent of the face value of payroll checks, I percent for government checks. Like other check cashers in Connecticut, where fees are capped by the state at 2 percent, he won't cash personal checks. He relies on the telephone and on an eye trained by expensive experience to ferret out bad checks. Any check not generated by a computer is suspicious, as is a low number on a check. (The latter indicates a fresh company whose payroll account may or may not be funded.) For suspicious checks, he'll call the issuing bank or company. But he's open long after banks are closed, so he often has to make snap judgments. He says fewer than one in 1,000 checks bounce. He's come by his skill the hard way-from a pile of bad checks in the back office.

While Consiglio's Check King has never been picketed by protesters, he's aware of the gripes against his sort of business. "We are the black sheep of the financial service industry, no doubt about it," he says with a smile. "I'm not standing on a soapbox saying I'm doing anyone a favor. I'm making money. Activists can yell all they want."

And yell they do, if not at Consiglio personally, then at his fellow check cashers. Or at banks for not operating as check cashers and, in some cases, for operating as check cashers. Or at anyone else who provides financial services in the low-income market. (See "Legal Loan Sharking or Essential Service?," page 38.)

"You don't have to be too smart to open up a check cashing store," says U.S. PIRG's Edmund Mierzwinski, who calls banks "greedy" and doesn't believe that banks and check cashers operate different businesses. "There are tremendous opportunities at the margins that banks have left for these guys to make a lot of money preying on the poor."

Testifying last June before the House Committee on Financial Services, Margot Saunders, managing attorney at the National Consumer Law Center, pulled out all the rhetorical stops. She was inveighing against allowing check cashers to participate in the Treasury Department's Electronic Funds Transfer program, which seeks to provide direct deposit accounts for federal employees and benefit recipients. Saunders talked of how "unbanked individuals have been sucked into the underworld of check cashers," and of "captive customers" who are "unsophisticated, often illiterate." She decried "financial apartheid."

"Already," she said, "upper-and middle-income Americans enjoy the safety and convenience of a highly regulated banking industry that provides competitive prices and is closely supervised to limit improper activities....Many poor people, on the other hand, are relegated to fringe bankers who are unregulated, unsupervised, and routinely charge exorbitant rates in the uncompetitive financial services market that exists in the low-income community."

This view is common, self-contradictory, and belied by reality. The financial service arena isn't segregated; it's richly diverse. Banks may be safe and convenient for upper-and middle-income Americans, who get paid regularly with direct deposit, pay their bills with checks, and move infrequently. But that doesn't mean banks are convenient for everyone, especially folks who work odd hours, have erratic incomes, and need access to their money as soon as they earn it.