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Despite high fees, customers see check cashers as part of community

April 17, 2017


BALTIMORE ó From behind the Plexiglas window at the back of his Brooklyn Park shop, Charlie Ward spotted one of his regular customers coming toward him.

"Heís here!" Ward exclaimed, arms out to Roy Wasmus, who has been coming to the Brooklyn Park check casher for close to 30 years, first to cash his paychecks from General Motors and now for money orders.

More than a quarter of Baltimore residents donít have bank accounts or, like Wasmus, donít use them exclusively. Instead, they manage their finances through check cashers like Charlie Wardís and with other alternative financial services such as prepaid cards.

Check cashers ó distinct from payday lenders ó typically also allow customers to pay bills, get money orders and wire money, which makes them especially popular in immigrant areas.

For years, consumer advocates criticized check cashers as part of the problem in low-income neighborhoods, saying they exploit residents by charging high fees and perpetuate poor financial habits. Yet, despite those fees, a research suggests their customers prefer check cashers to banks for their familiarity, convenience and simplicity. Some use check cashers because they canít qualify for a bank account.

But as much as check cashers fill a community need, consumer advocates and bankers argue their popularity highlights the need for better financial education so people become more financially stable and understand the role of bank accounts in establishing credit, securing loans and saving money.

Check cashers proliferated after the 1980s when bank deregulation prompted of consolidation that closed many branches, especially in low-income neighborhoods. As of June, there were 421 licensed check cashing businesses in Maryland, up from 340 the year before but down from 517 in 2010, according to state data.

They are found mostly in low-income neighborhoods, regardless of their racial or ethnic make-up.

"Banking has always been about a relationship," said Cassandra Jones Havard, a law professor at the University of Baltimore who studies the financial services industry. "So much of what happens with money is cultural and ingrained."

Many customers of Charlie Wardís donít go there simply because they donít have a better option. Ward estimates that between 30 percent and 40 percent of them have bank accounts.

They prefer Ward, with his jovial greetings, to the library-quiet bank branches where tellers address people as "sir" and "maíam," not only because itís polite, but also because they donít always recognize their customers.

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"Why do I come here? Because I like him, OK?" Wasmus said. "Heís like me ó heís got a bad leg, his hair is kinda receding like mine.

"Besides, itís close to home."

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Ward, who opened in 1975, is aware of his industryís reputation for being predatory, but he thinks itís unfounded.

"Weíre better than the banks," Ward said. "For a lot of people weíre just a lot more reasonably priced ó and Lord knows we try to be a lot friendlier than any of the banks."

Check cashers are licensed by the state, which caps the fees they can charge. Charlie Wardís charges between 1.5 percent and 2 percent to cash a check over $100. Checks under $100 are $1. Money orders are 25 cents and itís $2 to load a prepaid card.

He also sells bus passes, does wire transfers and can pay customersí utility bills. He charges fees to cover his costs and risks and to make a profit. The fee for each service is detailed in bold font on fliers tacked above the counter.

"Go into a bank and you donít see anything like that," said Lisa J. Servon, a professor of city planning at the University of Pennsylvania, who worked as a clerk at a check-cashing business in the South Bronx, N.Y., for four months to study customersí habits. "Even if you do open a checking account, you have a 45-page disclosure."

People who live from one paycheck to the next are willing to pay the fees because they often canít wait the days it takes for a check to clear at the bank and canít risk overdraft fees, which are often more than what it costs to cash a check, Servon said.

According to the federal Consumer Financial Protection Bureau, the median bank overdraft fee is $34. The fees typically are incurred for each item that bounces, which can quickly add up. While banks donít charge fees for depositing checks, many do charge maintenance fees for accounts that fall below a minimum balance, which can be difficult to maintain for someone living paycheck to paycheck or with irregular income.

Banks argue that their fees are necessary to cover the cost of offering services like checking accounts and debit cards, but theyíve also increased bank profits in recent years.

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Most banks offer low or no-minimum balance accounts for customers who have their paychecks directly deposited into the account, said Kathleen M. Murphy, president and CEO of the Maryland Bankers Association.

With direct deposit, people donít have to wait for their check to clear because the money is instantly available, she said. Online and mobile banking also make banks more accessible to people who donít live near ó or donít want to go to ó a brick-and-mortar branch.

"The thing a branch provides is the opportunity to talk face-to-face to someone," Murphy said. "I think the most important thing is for individuals and businesses to fully understand what the array of options are for them, and thatís one thing you can do when youíre visiting face to face."

Even though Jessica Fields has a bank account for direct deposit from her job as a manager at McDonaldís, she cashes other checks at Charlie Wardís.

"Itís OK," she said of her bank. "But all the fees, man, sometimes itís like, ĎWhat the hellís this fee even for?í"

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Morgan State University recently released a report, funded by Master Your Card, MasterCardís financial education arm, that focused on "financial deserts," places that have adopted their own financial norms in the absence of banks.

"These are not places where thereís dead space and no economic viability, itís just that the nature of that economic viability is not mainstream," said Kim Dobson Sydnor, dean of Morganís School of Community Health and Policy, and the reportís author.

Sydnor said she thinks check cashers are detrimental to the people who use them and their communities. But when the researchers conducted focus groups in Baltimore neighborhoods without banks, they found that even though people generally described such alternative financial centers as "sharks" many still preferred them to banks, which they described as untrustworthy and unfriendly.

The stateís Office of the Commissioner of Financial Regulation receives relatively few complaints about check cashers. Out of 1,154 complaints about banks, collection agencies, credit reporting agencies, payday lenders and other financial service providers regulated by the office in fiscal 2016, only four were about check cashers, said Commissioner Gordon Cooley.

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Consumer advocates are more critical of payday lenders, which offer short-term loans as advances on customersí paychecks, charging high interest rates. While Maryland allows payday lending, the state caps the interest rates at level lower than other states.

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As researchers learn more about why people use alternative financial services, they are looking for new approaches to improving financial well-being that could be more effective than simply trying to get people to switch from check cashers to checking accounts.

"Thereís a correlation between people who have checking accounts and who use them, and people who have savings and good credit history, said Rachel Schneider, a senior vice president of the Center for Financial Services Innovation and the co-author of a forthcoming book about financial habits. We all assumed that because there was a correlation, that if we got people into bank accounts they would be better off. I am currently deeply skeptical about that correlation."

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Associated Press