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.
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