ANNAPOLIS – Though Maryland sports the second highest family income and the lowest unemployment in the country, many lower-income residents still can’t afford basic checking accounts and end up paying a good chunk of their money just to cash a check.
It’s a situation that has sent one Howard County lawmaker to Annapolis every year since 1996 with legislation to correct the problem.
This year, Delegate Elizabeth Bobo, D-Howard, thinks she finally may succeed.
Her new bills, one requiring banks to offer bare-bones checking accounts and another to regulate check-cashing businesses and limit their maximum service fees, were still very much alive in the Maryland General Assembly last week.
Bobo, who first introduced her basic banking legislation after prompting by anti-poverty groups, said the lack of affordable banking services is spawning the growth of high-fee check-cashing businesses – and needlessly wasting peoples’ money.
Most banks require customers to keep minimum checking account balances that are too high for those living paycheck-to-paycheck, Bobo said.
Annapolis National Bank is a typical example: it requires customers to keep a $100 minimum balance, and it charges a $5.00 penalty if balances drop below minimum.
Without a bank account, people like Josh McCallum, a twenty- something mechanic from southern Anne Arundel County making around $20,000 a year, have to find other more costly ways to do their banking.
Last Thursday, McCallum, who said he couldn’t afford a checking account after switching jobs, found himself at the American Cash Express check-cashing store on West Street. He’d already tried unsuccessfully to cash his Maryland income tax refund check at a bank and a grocery store.
ACE didn’t turn him away – but it did take a chunk of his change. That’s just business as usual for check-cashing operations.
McCallum paid a one-time fee of $5 for a “VIP Gold Membership” card, a $4.05 fee for cashing a check in the $100-$150 range, and an additional $2.72 for cashing a tax refund check. In all, 9 percent of his refund went toward the transaction.
“Every paycheck goes to paying bills,” he said. “This is my last resort without opening up another bank account.”
Bobo said she understands his predicament – that’s why she is still fighting to pass a “basic banking” bill in the General Assembly. Her bill would prevent banks from charging more than $25 to open an account and not more than $3 a month to maintain it, limits that she thinks will make banks more attractive to lower-income residents.
The House Commerce and Government Matters Committee has killed the bill four years running, Bobo said, largely due to the efforts of the banking industry.
“The basic services are already widely available,” said Kathleen Murphy, executive vice president for the Maryland Bankers Association, representing 120 banks and thrifts across the state. Murphy said many banks she represents already have lower rates than those specified in the bill.
But Bobo sees it differently – she is convinced banks are pulling out of lower-income areas, creating a void that welcomes unregulated financial services companies.
While her legislation faces an uphill battle again this year, Bobo is encouraged – she only needs two more votes to reach the 12 needed to send the bill to a full House vote.
Regardless of the fate of the basic banking legislation, however, Bobo and other state legislators still want to regulate check-cashers and limit their fees – and Bobo said that bill is likely to become law this session.
Under that proposal, check cashing businesses charging more than $2 per transaction would pay from $500 to $1,000 in license fees and face a background check.
Many retailers – especially businesses like liquor stores where check-cashing is incidental to their main business – oppose the bill because check-cashing is too small a portion of total revenue to warrant licensing fees.
Others, like ACE, whose primary business is checks and money orders, said they welcome the law.
“We want regulation,” said Mike Canning of the Maryland Association of Financial Service Centers, who represents ACE, but he also said his clients want to charge higher fees.
As written, the bill would limit fees to 2 percent for entitlement or government checks; 3 percent for payroll checks, and 4 percent for personal checks.
Canning said his clients also want the bill to allow for one-time service charges for memberships – like McCallum’s VIP Gold Card.
While Bobo would like to avoid “damaging” amendments to the check-cashing bill, she said she might be willing to make small adjustments, particularly for businesses having trouble paying licensing fees.
“If they can convince me it’s a hardship to charge just $2, I’ll consider going to $3,” she said. In the meantime, McCallum, out $11.77, fumed about the fact that he couldn’t cash a Maryland check in a Maryland bank: “It’s really unfair for a bank to do that.” – 30 – CNS-3-10-00