SECTION: Business; Pg. 4D
LENGTH: 706 words
HEADLINE: Poor often must pay hefty fee when cashing refund check
BYLINE: SHWETA GOVINDARAJAN
Instead, reality kicked in. Bank of America employees told Axton
he couldn't cash the
Axton, a tow truck driver in
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
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
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
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
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.