Group’s Survey Uncovers Gouging of Consumers by Check Cashers

Many low-income Americans, forced by rising bank fees to turn to neighborhood check cashers, are being gouged by those businesses for cashing checks and getting short-term loans, a consumer group said Thursday.

The Consumer Federation of America, which surveyed 111 check cashers in 23 large, urban areas, found that fees for cashing a paycheck ranged from 1% to 6% and averaged 2.34%. Fees for personal checks went from 1.85% to 16%, averaging 9.36%.

In a fast-growing business, some check cashers also make loans to consumers on postdated personal checks to tide them over until their next payday, at interest rates equivalent to 261% to 913% a year, the survey found.

About 12 million American families can’t afford to maintain regular bank accounts, according to the Treasury Department. Stephen Brobeck, executive director of the consumer group, said more than half of black and Latino households either have no accounts or very small deposits.

Increasingly, these consumers are turning to storefront check cashers, often located in low-income neighborhoods but which have expanded into suburban areas.

Eighteen states regulate check cashers and only 12 impose caps on the fees they charge, according to the Consumer Federation.

Andrew Edson, a spokesman for the National Check Cashers Assn., had no immediate comment.

The trade group has said that many consumers prefer the convenience of check-cashing outlets, which are often open longer hours than banks.

With the payday loans, a consumer gives the check casher a postdated personal check and receives a cash loan. The check casher holds the check until the customer’s next payday, when the customer can do one of three things: allow the check to be cashed, redeem it by paying cash to cover the loan plus a fee, or “roll it over” by paying the fee to extend the loan for an additional two weeks or so.

Some check cashers have threatened customers with criminal bad-check charges when they have failed to make good on the checks, the group said.

The consumer group called for a ban on payday loans that do not comply with state caps on interest rates.

The survey covered check-cashing businesses in the areas around Los Angeles, Oakland, San Diego and other major U.S. cities.