Copyright 2004

The Atlanta Journal-Constitution


April 15, 2004 Thursday Home Edition


SECTION: Business; Pg. 4D


LENGTH: 706 words


HEADLINE: Poor often must pay hefty fee when cashing refund check




SOURCE: Cox Washington Bureau



Washington --- Two months ago, Mark Axton decided it was time to kick-start his American dream. He went to the bank with a $3,500 federal income tax refund check he planned to use for a deposit on his family's first home.

Instead, reality kicked in. Bank of America employees told Axton he couldn't cash the U.S. government check because it was over the bank's $2,500 limit for non-customers. He couldn't become a customer, they said, because he had bad credit.

Axton, a tow truck driver in Virginia, said he went to a check casher, a business that will cash almost any type of check instantly for a fee. It charged him 4 percent of the check's value, or $140, nibbling off a much-needed portion.

Each year, tens of millions of dollars in federal funds intended to help low-income families are siphoned off to check-cashing companies because most local banks won't cash U.S. government checks for non-customers.

In 2002, more than 20 million people received $36 billion in refunds through the Earned Income Tax Credit program, a federal initiative that gives low-income families back more than what they owed in taxes.

The program, created by Congress in 1975 to give poor families a tax incentive to work, is considered one of the country's foremost anti-poverty measures.

The average earned income tax refund check is about $1,700 but often can be as hefty as $4,200, according to the National Tax Assistance for Working Families Campaign.

But many of those refunds pass through check-cashing businesses, where service fees range up to 7 percent.

In a survey conducted in Chicago in 1998 by researchers from Syracuse University, Loyola University and the Urban Institute, nearly 45 percent of respondents said they planned to use a check-cashing service for their refund.

Ace Cash Express, which claims to be the country's largest check-cashing service, garnered $19.2 million, or 28.6 percent of its revenue in the first quarter of 2003, from cashing tax refund checks, it reported in a filing with the Securities and Exchange Commission.

Bob Chaney, manager of All Checks Cashed in Atlanta, said his store usually sees a jump in business around tax time. "On a typical busy Friday, an amount of money that will be cashed might be $60,000 or $70,000," he said. "In tax season, it's well over $100,000."

The banking industry says it can't afford to cash government checks for non-customers because it would be flooded with counterfeit or forged checks.

However, according to the Treasury Department, less than one-tenth of 1 percent of all tax refund checks sent to poor families are forged or stolen.

"The numbers are extremely small," said Wanda Rogers, assistant commissioner for financial operations at the Treasury, which issued more than 250 million checks last year. Bad checks "are not a big problem ... in relation to the volume we issue," she said.

Banks often encourage non-customers to open accounts, said James Ballentine, director of community and economic development at the American Bankers Association.

"A bank wants a relationship; check-cashers just want a date," he said. "Believe me, when you come into a [bank] ... they want your business."

Nevertheless, nearly 22 percent of low-income people do not have bank accounts, according to Michael Barr, assistant professor at the University of Michigan law school.

Many barriers discourage --- and often prevent --- poor people from opening or maintaining a traditional bank account.

Often poor people must use most or all of their tax refunds on existing debts once they receive them, leaving them with nothing to open a bank account with, Barr said.

In addition, 7 million people are listed on a national database called ChexSystems, a private clearinghouse used by banks to identify individuals with bad credit, he said. People on the list are usually turned away when they try to open bank accounts and can remain on the list for up to seven years.

Poor people who do succeed in opening bank accounts often have trouble maintaining them, Barr said. He said banks often charge fees if an account is overdrawn or require a minimum balance, making an account tricky to manage.