WASHINGTON – Check-cashing businesses in Maryland routinely charge fees of up to 20 percent and levy interest on cash advances that can run as high as 300 percent on an annual basis, say community and consumer rights advocates.
But the businesses, which have doubled nationally in the last five years, remain completely unregulated in Maryland, opening the door to further abuse of low-income residents, they fear.
“As the banks are pulled out of the neighborhoods … they (low-income residents) are turning to check cashers and the fees that they charge are quite exorbitant,” said Becky Sherblom, executive director of the Maryland Center for Community Development. “Twelve, 15, 18 or 20 percent fees are not at all uncommon.”
But a bill that would have regulated the industry was withdrawn by its sponsor in the General Assembly this year, despite support from the Maryland Check Cashers Association.
“We’re in a very legitimate business and we need not be in the position to charge exorbitant fees,” said Brian Satisky, president of the Maryland Check Cashers Association. He said a limit on fees is something “any legitimate check casher would welcome.”
House Bill 946 would have capped the fees for check cashing at 3 percent of the face value of government-issued checks, 5 percent for business checks, like payroll, and 10 percent for personal checks.
Its sponsor, Delegate Elizabeth Bobo, D-Howard, said regulations are sorely needed to curb abuses, but that she withdrew her bill after realizing that it was not extensive enough. The House Economic Matters Committee has promised to study the issue over the interim.
“The check cashing industry is a much broader industry than either I or the committee had realized … they are into payday loans” and other financial transactions, Bobo said. The bill just could not be modified by the April 12 end of the legislative session to cover all of those activities, she said.
Because they are unregulated, there is no way to keep track of how many check-cashing businesses there are in Maryland. But the National Association of Check Cashers says there are about 6,000 check-cashing centers nationwide and that the number has doubled in the last five years.
The association estimates that U.S. check-cashing businesses process 180 million checks a year with a face value of more than $55 billion.
Sherblom said the growth of the industry is driven by the lack of choices available to lower-income customers.
John Bowers, executive vice president of the Maryland Bankers Association, acknowledged that the recent wave of bank mergers has led to branch closings across the state and said that “check cashers are filling a void in the marketplace.”
But he said that the unregulated check cashers are doing “a lot more … than just cashing checks.”
“They’re making loans, they are not to my knowledge giving full disclosure as to the costs of the loan,” Bowers said. “There should be some oversight in those that engage in those types of products.”
Without that oversight, he said, check cashers are free to gouge their clients.
“The most expensive fee at a bank would be a blue-light special compared to the fees people are charged when they cash checks with those businesses,” Bowers said.
Some community groups and consumer advocates agreed that the industry is taking advantage of its lower-income customers.
A 1997 survey of check-cashing outlets by the Consumer Federation of America showed that the cost of cashing a personal check has doubled in the last 10 years. It cost the customer an average of 9.36 percent of face value — $14.04 for a $150 check — to cash a check in 1997, the survey said.
The fees soar even higher for “payday loans,” a cash advance on a regular payroll check. Sherblom said interest on those loans can reach 300 percent on an annual basis in Maryland. The national survey said rates have gone as high as 913 percent.
The Maryland Check Cashers Association opposed limiting fees on payday loans — or the “deferred deposit” program, as Satisky called it.
Despite Bowers’ support for regulating check cashers, the bankers association opposed Bobo’s bill as overly broad. And retailers were opposed to the bill as well, fearing they would get unintentionally caught up in its restrictions.
“We just did not want to come under such an extensive regulation and licensing,” said Tom Saquella, president of the Maryland Retailers Association.
For retailers, he said, check cashing is both a service to customers and a means to get money to people in the hopes that they will turn around and make a purchase.
“We just think that whole process is way too much for retailers,” Saquella said. “Putting a limit on the fees, it never ends there, it just starts the ball rolling.”
In the meantime, said Sherblom, business is likely to continue booming for the check cashers.
“If I have a check and I need it cashed and I have no cash in my pocket and I need food for my children, I am pretty much willing to pay any fee to have that check cashed,” she said.