Copyright 2004 Cox Enterprises, Inc.
Cox News Service
SECTION: Financial Pages
LENGTH: 1161 words
HEADLINE: POOR FACE HIGH FEES WHEN BANKS SHUN TAX REFUND CHECKS
Moving in (w)
By SHWETA GOVINDARAJAN
Cox News Service
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 (EITC) 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 EITC 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 Inc., 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 for 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 with 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.
The banking industry does not issue guidelines for check-cashing policies, but most major banks will not cash checks for people who do not have accounts, while others limit the size of the checks they will cash.
In 2001, nationwide commercial banks lost $698 million due to cashing bad government and non-government checks, according to Jane Yao, managing director of the Survey and Statistics Division of the American Bankers Association.
"The reason why the numbers are low is because banks are not
cashing checks for bank customers," said Nessa Feddis, senior federal counsel with the
Banks often will encourage non-customers to open accounts, said
James Ballentine, director of community and economic
development at the
"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 S. 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 customers to maintain a minimum balance, making an account tricky to manage for people who don't have a steady income.
Part of the attraction of check-cashing services is their ease of use, said Irene Skricki, a program associate with the Annie E. Casey Foundation, a national foundation that provides services to disadvantaged children and families.
Some people, even those with bank accounts, use check cashers to get money quickly, Skricki said. Many people put up with high service fees because they are still cheaper than the account fees some banks impose. And others use check cashers because they have no other option, she said.
"Banks don't want to be dealing with this clientele," she said. "Banks are not all that motivated to serve people who are going to have much lower amounts in their bank accounts."
Check-cashing stores justify their service fees as a way to protect themselves against the risk they assume by accepting almost all checks.
"Paying a fee for service is a better deal (compared to) maintaining a minimum balance, paying monthly fees," said Rick Lyke, spokesman for Financial Service Centers of America, a national trade association that represents 5,000 check-cashing stores across the country.
"I live in a cash society. If I can't pay cash for it, I can't get it," he said.
Axton can cash his payroll checks only at the bank where his company holds an account or at check cashing stores, and has to keep all his money at home.
"I get my paycheck on Friday _ what happens when we get robbed on Saturday?" he said.
Shweta Govindarajan's e-mail address is sgovindarajan(at)coxnews.com