Why check-cashing stores are a good deal, according to a UPenn professor | Hacker News Reader

Why check-cashing stores are a good deal, according to a UPenn professor

businessinsider.com

48 pointslisper50 comments

The article's title promises a provocative contrarian view but it turns out that the UPenn professor is only "right" in a narrow sense that the criticizers of "payday lenders" are not even talking about.

To the professors point... yes, a traditional bank's service fees can exceed the fees at check cashing stores. For example at Chase Bank, if a poor person lets the balance drop below $500, they will be charged $30. (To many of us, $500 doesn't sound like much but to people living paycheck-to-paycheck, it can be very hard to stay above that amount every month.) Account holders on the lower tier also get limited check writing privileges. Some account fee waivers also don't kick in unless their paychecks are direct deposit. However, many laborers still get paper paychecks so they can't meet the bank's criteria for the reduced fees.

The criticism that the professor's math doesn't tackle is the ~400% interest rates on payday loans: http://www.paydayloaninfo.org/facts

Yes, $0.89 money order at RiteCheck is less than $5 charged by Chase Bank but that's not what the criticism of predatory practices is about.

I once ran out of cash when driving across the country with my family, because the bank froze my account 2 days after supposedly clearing a check and telling me I had access to my funds. My bank told me it might take up to two weeks to get access to my funds. I would have been much better going to a check cashing place, because of their clarity and transparency. I almost ended up having to sleep with my kids in the car, or in a park somewhere, but we managed to find a pawn shop that was open 24 hours. We paid around $60 to borrow $1000 for two weeks, which is a high rate compared to a regular bank loan if you can get one. But it was the difference between my kids sleeping in a hotel and being homeless. People who want to shut down these kind of services have good intentions, but the effect of their paternalism would be to reduce choice for poor people, and make their lives worse.

Credit cards seem tailor-made for this case, because they give you four weeks or so interest free and then start with the usurious rates.

The evidence shows that situations like yours are not how payday check cashing businesses are usually used. Often people get into a revolving door of debt. Sure, there are situations where they can be used for good. Generally however, they are not. Rather than accepting, and let's call them what they generally are, predatory check cashing loans, for the VERY limited good that they do, why not work on improving the clearing house system so that your check can get through a real bank in a reasonable amount of time?

How does removing options for people make them better off?

Hard drugs, drunk driving, driving without seat belts are not legal options that make people better off. Buying food below certain levels of quality for cheap is not an option.

By removing bad options. Like cars without seatbelts, or toys with lead in them.

The trouble with removing "bad" options is when you leave no other options.

That makes no sense. We're not talking about lesser options that are slightly off the norm. These are bad options that are clearly outliers.

What do you suggest are other options than check-cashing stores?

An actual bank?

> revolving door of debt

A lot of this debt is replacement for missing income. Given the increasing gap[1] between income and productivity as debt substitutes for income, is a "revolving door of debt" or "debt instead of savings is the new normal"?

Yes, predatory loan sharks should be harshly regulated and obviously improvements should be made to checking and other financial systems. I'm only suggesting that we also need to address the larger causes, or we're leaving half the problem unfixed. As long as income continues to drop relative to productivity, there will always be opportunists trying to "help" with predatory terms.

[1] https://upload.wikimedia.org/wikipedia/commons/e/ef/Producti...

The increase in economic inequality (and effects in that same realm) a very huge issue, I agree. I just thought it was a little out of the scope for this thread.

So why do people continue to use bad actors like Chase Bank. How many examples do we need of the way they bleed fees and penalties from people who can least afford it.

There are local banks and credit unions that have much better deals.

Switching banks is a PITA. I maintain typical accounts at >5 banks, most of them are well-known national brand name banks though a couple are smaller regional/local banks.

I've long intended to close down several of them -- especially one of the oldest ones, which hasn't had a branch in my resident state for roughly 10 years now -- but I then realize it's a low value proposition. I've got some small ACH or card-based auto-pay stuff on it that I'd have to track down and move, and all that. Not to mention the 'fear' I have that I'll be traveling and get locked out, so may as well have other options.

I realize it's probably not as bad as I think, but frankly I'd almost just rather just keep my "doors open" so to speak, even if it is a small money drain.

BTW -- I very recently paid $10 for a Cashier's check at a national brand bank, wasn't thrilled about it, but paid it. That said, their online presence/capabilities make up for it (especially vs many regional/small banks).

I just wish SVB did personal accounts. They rock.

In the UK, we have a service called the Account Switching Service - which redirects all your incoming and outgoing payments for you, with a guarantee that it's done properly. Shame the US goes for lock-in.

> In the UK, we have a service called the Account Switching Service

Please tell me that people unhappy with this call it a pain in the ASS.

A few years ago, Britain made rules that forced the banks to make it easy to switch accounts. This was to improve competition between banks, and hence improve service and prices for customers.

I used it. It required closing the old account, but everything was done automatically: bill payments transferred over to the new account, the remaining balance, pending cheques, and any incoming electronic transfers for the next 13 months. They also sent some kind of electronic message to my employer, updating my bank account details on their system.

https://www.gov.uk/government/news/2-million-switches-in-2-y...

> There are local banks and credit unions that have much better deals.

So much this. I have had an account at a local bank for most of my life, and it has always had no minimum balance and no fees. Better still, when I call customer service, I talk to a real person from the same community as my bank, not a machine or an underpaid Indian in a call center. Sure, $LOCAL_BANK doesn't have ATMs on every corner, and ATM fees are obscene, but you can always get cash with no fees at a big grocery store.

I can't think of a good reason to have a personal account at a giant bank.

> I can't think of a good reason to have a personal account at a giant bank.

Better online banking and mobile apps, and two-factor auth, are advantages of big banks with large IT budgets.

~400% interest rates on payday loans

If you count fees as "interest", banks charge 400%+ interest rates on overdrafts, too.

> or example at Chase Bank, if a poor person lets the balance drop below $500, they will be charged $30.

How on earth is that legal? I understand that there are overdraft fees or that the banks want interest on the debt if your account goes negative, and that's fine when those fees are not predatory.

But fining people for having too low positive cash balance?! That's theft.

>But fining people for having too low positive cash balance?! That's theft.

I just used casual shorthand when I wrote "charged $30".

The way the bank's Terms of Agreement spells it out is that every account has a monthly service fee -- e.g. $30. However, if you maintain a minimum balance above $500, they will waive that fee. (Many in the HN demographic would have a higher tier account such as "Premiere/Preferred/Platinum" and those also have minimum balances of $20000 required to waive the monthly service fees. It's still the same idea, but a bigger number.)

The banks word it in positive terms ("above/waive"). I just wrote it the opposite way ("below/charge") to match how people psychologically perceive it. For many people seeing the minus-$30 deducted from their account, it certainly feels like a penalty/fine instead of a +$30 bonus for all the other months that they were above $500.

Whoa, that's still theft, even if you explain it this way. My bank (Sparkasse), for example, charges 8€ a month and that's already perceived as "near to extortion" - and the increase to 8€ actually led to massive public outrage. Many "direct banks" (i.e. banks without physical offices, services via ATMs and Internet only) are entirely free here.

I remember this professor's articles on this subject from around five years ago. I suspect this is in the news again because she published a book this January.

It's not hard for me to see why poor people would prefer check-cashing services to banks.

I'm nowhere close to poor, and I've had to get my bank to reverse fees they should not have charged me on a number of occasions. I was also a Wells Fargo customer during the period of the fake account scandal.

On top of all of that, I was the beneficiary of a class action against Wells Fargo because they used to order deposits and withdrawals in the way that would maximize their overdraft fees. I overdrafted once when I was in college in a way that would be impossible today because the bank changed the order of my transactions, and I got stuck with overdraft fees of a few hundred dollars. If I had been truly poor, I would not have been able to make my rent that month.

In most of these cases, I had to persistently call my bank and speak to multiple people to resolve the problem. I'm socialized into the middle class because of my upbringing, so I can pull that off -- many poor people can't. Being able to deal with government and businesses in this way is part of the intangible cultural capital that most poor people don't have. This is one of the reasons poor neighborhoods get better services when they gentrify -- the well-off newcomers know how to get things done.

This has happened to me as well. What I do is go to the bank and sit down with the manager, and push until I get those fees reversed. Going in person is much more effective than calling on the phone, and the manager will just fix it to get you out of his hair.

If you dress or talk like the kind of people who use check cashing stores, the manager is likely to call security and have you removed.

I dress in t-shirt and jeans. Of course, one does need to talk in a polite manner. Walking in with an abusive and abrasive manner won't get results.

"Check" cashing shouldn't even exist. Most of the western world has functional electronic transfers and bank accounts with no minimum fees.

At home in Australia, all it took for anyone in the country to send me any amount of money within around a business day (soon instantly) and for free was two numbers: my BSB (bank branch number) and account number.

Getting a bank account was essentially free (no fees if you deposit at least $2k/month or are under 18, a student or qualify for low income government benefits) and as a result pretty much everyone had them and used them. I'd actually only seen a "check" once in my life and it came from my grandmother. Employers, friends, parents, everything really was electronic.

The US for some reason is way behind the rest of the world here. The answer isn't to force people into the ancient and backwards banking system, it's to update it so that they can and want to use it.

The US has a very large population of people known as the "unbanked" who cannot/will not get a bank account. Reasons include immigration/ID status, history of writing bad checks, bank levy, etc. They must use check cashing services, pre-paid debit cards, etc-often with high fees.

https://en.m.wikipedia.org/wiki/Unbanked

> Reasons include immigration/ID status, history of writing bad checks, bank levy, etc.

The first can be a legitimate issue (though your link says the majority of the unbanked are American-born), the last two should be resolvable by modernizing the banking system by removing the outdated checking system entirely and offering basic accounts without fees/minimums (at least to low income individuals), bringing the system in line with the rest of the civilized world.

The anti-check cashing and payday loans movements have always been somewhat patronizing. People have different needs and sometimes it's worthwhile to pay extra fees to access money quickly, or get short term loans.

Rarely in the rants against these services do I read any discussion or analysis of why the customers use them, and what their other options would be without them.

Oddly, the people who claim to care the most, don't want to apply some empathy and try to understand..

Isn't the argument not to get rid of check cashing, but to provide it as a highly regulated, low cost service of the Post Office?

http://www.latimes.com/business/la-fi-post-office-banking-20...

Postal bank accounts are a pretty old idea. The US used to have them, and a lot of other countries still do.

I suppose the US got rid of postal bank accounts before check cashing places were common, but I think proponents of reintroducing postal bank accounts need to explain why the poor would prefer them to the services they currently use. Such an answer needs to take into account the possibility that many poor people might be willing to pay a fee to avoid contact with a government agency, which many people believe the postal service to be (even though it isn't anymore).

> .. a government agency, which many people believe the postal service to be (even though it isn't anymore).

Can you clarify/defend this? I realize the USPS is not a government agency in the usual sense (it's an "independent agency of the United States government"), but I don't think it's accurate to say that it's not a government agency. Specifically: https://en.wikipedia.org/wiki/United_States_Postal_Service#G...

It's effectively independent.

The postal service is not going to bust you for violating parole, put your welfare checks in jeopardy, or ask you about your immigration status. But a lot of poor people avoid contact with government because they fear those things will happen, and a lot of them may not understand that the postal service is different.

That's not really addressing the point; whether or not the USPS does those things you mentioned doesn't really affect how much or little of a government agency they are. I would again point you to the "Governance and organization" section on the USPS Wikipedia page.[1] Specifically this paragraph:

The USPS is often mistaken for a government-owned corporation (e.g., Amtrak) because it operates much like a business. It is, however, an "establishment of the executive branch of the Government of the United States", (39 U.S.C. § 201) as it is controlled by Presidential appointees and the Postmaster General. As a government agency, it has many special privileges, including sovereign immunity, eminent domain powers, powers to negotiate postal treaties with foreign nations, and an exclusive legal right to deliver first-class and third-class mail. Indeed, in 2004, the U.S. Supreme Court ruled in a unanimous decision that the USPS was not a government-owned corporation, and therefore could not be sued under the Sherman Antitrust Act.

Of course the Wikipedia article cites external sources, such as Title 39 of the US Code[2] (which is entirely about the USPS) and a Supreme Court ruling.

[1] https://en.wikipedia.org/wiki/United_States_Postal_Service#G... [2] https://en.wikipedia.org/wiki/Title_39_of_the_United_States_...

It's hard enough to reach a bank during its open hours, as a working person. Let's make it even more impossible, by offering it through the post office, which is seemingly never open during any time that one attempts to go there.

The Post Office? Sure, if you want to wait in a 45 minute queue to cash a check.

You must have a bad/understaffed Post Office, the one in my town has excellent service.

Any sort of advocacy for these services or against them should be followed through with empirical data showing the outcome with them existing, after a year, and potential outcomes if they did not exist at all. Using data from the real world. I think you would find that on an individual level if people did not have the option, the amount of damage done to themselves financially would be less. In any case heavy regulation and monitoring of both the services and the users of the services, as in keeping a full record of their finances for future analysis should be mandatory... so we can get the best policy implemented in regulating these services. Instead of the arm-chair intuitive understandings of the problems jaded by appeals to emotion and dogma whether capitalist or socialist.

How strong is the anti check cashing movement?

Obviously patronizing these stores makes sense to their customers. The true criticism has always been about the conditions that lead to them making sense. This "revelation" indicates more about the professor's amazement at toning down her own paternalism than any economic discovery!

Banking fees in the US (and Canada) are extortionate

Not to mention all the BS about banks making sure they credit last and debit first, causing accounts to overdraft (and more extortionate fees on top of that)

They like you if you can keep > some k$ in your account per month, if that's not the case you're being explored. Funny thing is that it seems the avg "fee" obtained by the bank (let's say, it's around 5% of money of your minimum balance per year - so if the minimum balance is 1k, this is $50 p.y.) is higher if you're a paying customer (that is, one with a lower balance) as opposed to a "no fees" customer

> Outsiders may think the signage at a check casher — resembling that of a fast-food menu — is gauche compared with simple, polished interiors of their local bank branch. But that's a feature, not a bug.

Of course. It reduces the cognitive cost of using your service. All else being equal, doing that is going to make your service better.

Of course, doing that may make you look uncool as the article alludes to.

No kidding. I just did a handful of financial transactions and at every step of the way, every bank said "oh, in terms of disclosure, there's a $X fee attached to that" where X was $10-30 each time. Nowhere was that documented until I started the process.

I was able to push back and get all except one dropped (and that was halved) but unless you're used to saying "no," they would have gotten me for another $60.

That much isn't going to make or break the vast majority of people here but we're outliers in many ways.

This feels icky; she focused on the check cashing fees, which my guess is a loss leader for the payday loans they really want to offer people.. no mention of that anywhere in the article.. is it possible this place didn't offer loans, just check cashing???

Carlos needs a credit card. If he's got a $5k checque in hand and needs to buy materials, depositing it in a proper checking account and using a credit card would be far less fees, even if he has to pay transaction fees on that bank account when it comes time to pay off the card.

The downfall is when expenses come up that he can't pay on plastic if he's under his bank account's transaction-free level. Paying subcontractors, buying exotic or used materials and equipment, etc.

In Germany, one can't get a credit card without a good credit rating, and even then it's mostly the "pay in full after a month, or else" type.

Carlos could not get a CC here, I'd guess.

Reply on news.ycombinator.com