Why Do Check Cashing Services Exist?

by Dave

I caught a commercial a couple weeks ago where they were advertising that Wal-Mart will now cash checks for “only” three dollars apiece. The ad went on to say that, for an average person, that would be a savings of about two hundred dollars a year. In order to explain this concept to viewers, whom Wal-Mart obviously considers to be stupid at some sort of subhuman level, they stated that one could buy a small television set with the savings, a concept that seemed both idiotic and insulting to me. Nonetheless, I wondered how the average person would be saving that much money by paying for a service that anyone with a bank account in good standing could get free of charge.

Since then, I have noticed commercials for several competing services on television, some of which appear to be businesses who do nothing but cash checks for people. This piqued my curiosity, so I began a very scientific campaign, via Google, to determine how much is costs to cash a check these days. Results were all over the map, ranging from a flat rate of three to ten dollars, to percentages from as little as one percent all the way up to forty percent. That’s right, forty percent.

I’m going to assume that people who use these services on a regular basis do so because they missed basic economics in high school. To help, I’ll offer them the following free personal finance tip: It generally isn’t a good idea to trade a dollar for sixty cents.

I’m not unfamiliar with the concept of cashing checks for a fee. I see many, many dive stores around metro Detroit, almost always in the poor and immigrant neighborhoods, that offer such services. Check cashing is almost always coupled with Lotto sales and cheap liquor, staples, it would seem, for the underprivledged. Generally these places will also allow people to pay bills, acting as some sort of usurious ghetto bank, which isn’t as cool as it might sound.

What surprises me is that a company as huge as Wal-Mart would be interested in hustling people the way tiny convenience stores do, not to mention taking the risk of cashing checks that will bounce, for three bucks apiece. I’m sure they have everything figured out, and stand to make a good profit at volume, but it still seems like a lot more trouble than it would be worth, the fact that those people would probably spend a healthy portion of that cash at Wal-Mart notwithstanding.

Now maybe I’m hanging out with the wrong people, but I don’t know a single person who needs to go to a store to cash a check. You know why? Because one hundred percent of the people I know have bank accounts. In fact, most of us don’t even need to go to the bank to cash a check, since our paychecks from work are automatically deposited on pay day. And what do we pay for all these services? Nothing. Not a goddamn cent.

It baffles me that anyone would choose to pay some jerk at a store to cash their paycheck instead of getting free checking account, especially since these days a lot of banks offer the service with free checks and no minimum balance. Hell, even if you didn’t want a checking account, you could still take the check to the bank from which it was drawn and get it cashed there. After considerable thought and effort, the only two reasons I could come up with for someone not getting a bank account were:

1. They are an illegal alien and thus do not have the proper documentation required to start an account
2. They have had accounts in the past the were closed do be being constantly overdrawn

Surely these two groups of people have to represent a tiny minority of check cashing customers, so who’s making up the difference? I’d honestly love to know, so if you have the answer, add a comment.

This has been Dave sayin’: “So you do have a plan! Yay Mr. White! Yay science!”

Original here