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Is Government Check Cashing Legislation Necessary?
Financial Industry Responding to Need On Its Own
Legislation was introduced in April in Congress to regulate check cashing outlets and to require financial institutions to cash government checks for non-customers.
Lawmakers heard many stories about how the recipients of government checks sometimes had to pay as much as $50 to cash a $400 check at a check casher.
The House Representative who wrote the proposed legislation said that Congress "…could not sit idly by…" and let things like this happen.
Legislation Not A "Cure-all"
One of the reasons bankers feel legislation would not work in this area is because the same requirements would not "fit" all parts of the country. As one banking officer put it, "A small bank in a rural community must be permitted the flexibility to tailor its operations and products, including its basic banking accounts, to fit the needs of its customers, as should a large institution operating exclusively in an urban environment. Legislation will inhibit banks from tailoring basic banking accounts to local needs."
A Community Reinvestment Act compliance officer put it in simple terms. She told a Congressional banking panel that it is the opinion of many knowledgeable bankers that "…not only would legislation interfere with the natural response of the marketplace, but it could actually hurt the consumers it is intended to help."
Not The First Time
This is not the first time financial institutions have heard the complaint about the cashing of government items and the cost of banking services. Several years ago a piece of legislation requiring mandatory government check negotiation for non-customers was proposed and almost passed. Included in the proposed legislation was also a ceiling on how much could be charged for encashment, with $3 being the maximum allowed in one of the recommendations.
Even though the law did not pass, it got the attention of the financial industry. And-like the health industry, which is changing, adjusting, and adapting itself without Congressional help-the financial industry has already taken many steps to respond to the needs of the marketplace and the concerns of the House and Senate by providing affordable basic banking services and government check cashing services in the communities they serve.
The "Spirit" Of The Act
Most banking offices now offer low cost accounts with lower minimum balance requirements. In 1993, the Consumer Bankers Association conducted a survey of 150 of the nations leading banks showing that 95% offer basic banking accounts. Some are called "Community Accounts" while others bear names like "Silver" or "Premium" or "Senior Citizen" accounts. An unofficial survey taken by BANKERS' HOTLINE showed that a typical account either has no monthly charge or less than a $3 charge for a checking account, with up to 8 free checks a month, and, of course, no charge for cashing government checks for customers.
Whatever the name of the account, compliance and marketing officers are very much aware that the requirements of the Community Reinvestment Act go far beyond lending. They are guiding their institutions to low cost services that meet and exceed the spirit of that Act. (See editorial on page 6.)
Some Prefer Check Cashers
During the hearings held by the House Banking subcommittee on check cashing legislation a representative of the Association of Consumer Organizations for Reform Now said that "…in 1988 the General Accounting Office estimated that nearly one in five American families does not have a bank account."
According to the check casher who testified, many of their customers prefer the services of check cashing outlets, because they get quicker access to their funds, because they are closer to their homes, and because they have more flexible hours. He also noted that independent surveys indicate that 60% to 70% of check cashing clients maintain a relationship with a bank.
Bottom Line
The proposed legislation regarding check cashing has been pushed to a back burner for this session, according to financial industry congressional watchers, but it hasn't gone away. One congressman noted that access to banking services "is an absolute necessity for consumers to save, invest, obtain credit, and build financial security."
By the time it receives consideration again, however, the problem may have gone away.
Copyright © 1994 Bankers' Hotline. Originally appeared in Bankers' Hotline, Vol. 4, No. 12, 7/94
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