Cagey Consumer[13k]

For Immediate Release July 13, 1998
For more information, contact Eli Mantel, +1 650-493-7228

Check Cashing Loans Bad News for Consumers

The check cashing industry is expanding... from lower-income urban areas to the middle-class suburbs. Television commercials aired by Check 'n Go offer consumers the opportunity to cash a check today and not have it deposited for two weeks. The ads don't bother to mention the typical 15% fee the company charges for this service, which works out to an interest rate of 400% or more.

With such large fees, regular customers of this service would pay fees equaling the entire amount of their average cash advance after having used the service just 5 times. A person who used the service to borrow $200 once, and then re-borrowed $200 each two weeks in order to repay the previous loan, would have paid $780 in fees over the course of a year.

But aside from large fees that only worsen the financial situation that causes some consumers to resort to such a service, soliciting consumers to write post-dated checks that they're not sure they can cover could conceivably put them at risk of criminal prosecution. Potentially, a consumer who doesn't receive their expected paycheck could find themselves spending additional money on a criminal defense lawyer. Since industry sources claim their high fees are justified by the high rate of checks that are returned unpaid, this is apparently a significant risk.

Advertising Clouds Other Options

Consumers who are presented with advertising promoting advances from check-cashing services may overlook the possibility of using more traditional, less expensive options, such as a signature loan from a credit union. Although the check-cashing industry claims that it's not practical for traditional financial institutions to make such small loans, a substantial number of credit unions have minimum loan amounts of $300 to $500 on signature loans. Furthermore, the interest paid to a credit union on a signature loan for a full year is likely to be less than what a check casher charges for a single two-week cash advance.

Check Cashing Loan Services Bad for Customers

On the whole, customers are very poorly served by businesses that make such loans. The high fees make it less likely that a customer will get his financial situation under control and increase the probability that the customer will be back every pay period, drastically impacting the customer's discretionary income.

Given the ultimate impact on consumers, states should vigorously prosecute such services under the anti-usury laws. The media needs to educate the public about the high cost of using these services and encourage the public to seek alternative solutions.


The Cagey Consumer web site is hosted on GeoCities at www.geocities.com/WallStreet/5395. The editor and publisher of Cagey Consumer is Eli Mantel, a computer systems analyst in Palo Alto, California.
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