Sylvia Perez left her Harlem apartment with about $1,000 and made her way to the Lower East Side to “settle her business,” she said. Twice a month, she visits a check-cashing store at Eldridge Street and Houston Street to cash checks and buy money orders for her bills.
“I never had enough money to put it in a bank,” said Perez, 58, who lives at 142nd Street and Eighth Avenue and often works odd jobs to make ends meet. “I’ve been coming here for years. It’s more personable and quick.”
Although banks seem to be at every corner, check cashing remains a prominent industry, offering a variety of services to the low-income.
“People use check-cashing places instead of a bank because they don’t want to wait two to three business days to clear into the account,” said Murat Aydinoglu, 25, a manager of Check Change LLC. “Also, banks don’t offer Western Union or bill payment services. The bank can issue money orders, but you have to pay more.”
The gritty look of the store is typical of check cashing establishment — windowed storefront for security, rubber-carpeted floor and shabby interior, covered by occasional graffiti.
About 200 check-cashing companies operate 662 full and 280 limited service branches in the state, according to the New York State Banking Department, which regulates these alternative financial institutions. Most of the establishments are located in New York City and serve moderate- to low-income communities, where banks are sparse. Check cashers processed nearly 32 million checks with a total value of $14.9 billion and collected $222.2 million in fees in 2006.
By state law, local check cashers charge 1.75 percent on all checks, with a minimum fee of $1 per check. A non-expired, state issued identification or a valid passport is required for check cashing and money transfers.
While the Banking Department enforces fees for check cashing and Western Union determines fees for money transfers, check cashers are responsible for money order and bill payment charges.
“There are some check-cashing places in my neighborhood, but their money orders are more expensive, I think maybe 89 cents,” said Perez, who buys money orders for up to $1,000 for 29 cents at Check Change LLC. Other stores charge between 49 and 99 cents, while money orders cost $1.05 at the United States Post Office and $5 at mainstream banks such as JP Morgan Chase.
Fees for other services vary from one check-cashing location to another.
“The fee for paying a bill here is 50 cents; Pay-o-Matic takes 30 cents; our profit is 20 cents,” said Aydinoglu behind a double, thick plexiglass security partition. “People come and ask me whether I process payments for particular company and I check, and if I have it, I tell them so.”
Although a simple flier advertised bill processing for a handful of companies such as ConEdison, Cable Vision and AT&T, the store manages bills for more than 200 companies through Pay-o-Matic and CheckFreePay, money transfer companies licensed by the state. The automatic transfer takes two to three days for the payment to reach the company. Charges for bill payments are as high as $2 at some check cashers, while sending payments through the mail costs only 41 cents for a stamp and is free online for some companies.
Customers often take issue with bill processing at the check cashing establishments.
“They say two to three days, but sometimes it takes like a week (for the payment) to get there,” said Samuel Brawn, a construction worker who cashed his check at Check Change LLC one recent Friday afternoon. “You can call and explain your situation and it’s fine, but when they cut your electricity or stop your phone because of this, it’s a problem.”
Check cashing and money transfer companies do not take responsibility for delayed bill payments, said Aydinoglu, adding that bill payments is not the most argumentative issue in the industry.
“The most general confrontation with customers is: ‘I am $20 short in the money you gave me,’ ” he said. “What we do is we close the register and count it to see if it is over or not. And if nothing turns up, we sometimes close the whole store and try to figure out what happened.” Those complaints occur a couple of times per week despite a sign advising customers to check the money at the counter before leaving.
While some of the clientele are bi-lingual or speak no English, language skills are not a prerequisite for hiring at Check Change LLC.
“Some of my colleagues speak Spanish. We also have some Chinese speakers, but you don’t have to be necessarily bilingual to work here,” said Aydinoglu. “This is a simple businesses — everybody knows the numbers, people point to things, write up numbers. Money has no language.”
While a special degree or training is not required to become a teller at a check casher, the necessary math and financial skills are determined through an application and interview hiring process.
“The number one thing in this job is honesty,” the manager said. “You have to be somewhat trustable to work here because you deal with a lot of money here. It’s not just $50,000-60,000, there is $300,000-400,000 to deal with.”
While the downtown location of Check Change serves around 150 customers on a regular day, it has about 300 to 400 clients on Fridays, which is payday, or the first of the month. On average, 900 to 1,000 customers visit the store per week, which is high, said Aydinoglu, adding most locations serve 600 to 700 people per week. Most of the store’s customers are regular clients, who work or live in the neighborhood, but do not use many of the mainstream banks that have sprung up in the area.
“Traditionally, many low-income people have seen banks and even credit unions as not for them for a variety of reasons,” said Millard Owens, a senior deputy director of Office of Financial Empowerment, a core component of the city administration’s efforts to fight poverty. “Often times they either assume or have real experience and some knowledge that there are prohibitive fees, that there are prohibitions in the start-up of the account because they don’t have the minimum balance to open it, or they don’t have the minimum to maintain a free checking account.” Owens also teaches a public policy course on the formation of poverty and wealth at Robert F. Wagner Graduate School of Public Service at New York University.
But nearly 60 percent of check cashing users maintain a savings or checking accounts at a bank or credit union, according to the Financial Service Centers of America, an association representing the check cashing industry. Despite having a bank, customers still prefer check cashing vendors because of their convenient locations, longer hours of operation and approachable staff.
The check-cashing business is being threatened by more employers paying employees by direct deposit. The government has also started providing more benefit payments by direct deposit or debit card and, therefore, the number of checks cashed has been decreasing since 2000.
“In the last 10 years, we’ve seen a big shift – a strong retail banking presence, developing in a lot of the low-income communities,” said Owens, crediting the Community Reinvestment Act, which requires banks to meet the credit needs of low-income neighborhoods. ”Also, the fringe financial institutions (check cashers) led the mainstream financial institutions to recognize that not only should they be in these communities but there’s actually a lot of money to be made in these communities. Plus, we have a lot of gentrification going on, so a lot of communities that have been traditionally low income are becoming these marginal or emerging communities.”
Several innovations in the check cashing industry offer alternative savings options to clients. In 2005, FiSCA teamed up with NetSpend Corporation of Austin, Texas, to launch the All-Access National Savings Program, which entails an interest-bearing, federally insured account linked to a prepaid debit card. So far 35,000 accounts have been opened at FiSCA member check cashing stores throughout the country. In New York, 500 locations offer the program.
“We want people to get banked but at the same time we need to recognize that there need to be appropriately designed accounts for low-income people – not slapping them with exorbitant fees as many accounts do, and not having opening balances or minimum balances on ongoing basis that are prohibitive for people, that end up resulting in high fees,” said Owens, whose office help launch Opportunity NYC, a conditional cash transfer initiative, rewarding low-income and poor households for breaking the cycle of poverty.
As part of the initiative, banks and credit unions offer a special savings account, which does not require a minimum opening balance or charge monthly fees, and provide a $50 incentive for participants to join the program, which encourages saving and budgeting, and assists in establishing and maintaining good credit for account holders.
But despite the growing number of bank branches in the city, some neighborhoods are out of the loop. As a result, a bank-check-cashing hybrid, called CheckSpring, opened last year at 167th Street and Gerard Avenue in the South Bronx.
“We have a mix of customers – people who don’t want a bank account, people who opened their first bank account, and people who have bank accounts but use check cashing because of its immediacy and close location,” said Kelly Dillon, a co-founder and treasurer of CheckSpring, which offers mainstream banking along with traditional check cashing services. “There may be plenty of banks in Manhattan, but here in the Bronx, where we are, the nearest bank is more than half a mile away.”
CheckSpring, which is a bank that profits mainly through lending services, came out of a Bronx-based non-profit organization, Ariva, which provides wealth building knowledge and tools.
Customers of this alternative bank who open checking and savings accounts receive matching funds for their deposits, free services for money orders and account maintenance among other benefits. CheckSpring plans to expand by buying up check cashers stores and opening branches there to ensure a smooth transition of the local clientele.
“We are not in competition with banks here,” said Dillon. “Check cashing is very community oriented. People have used them for years and there are used to their financial structure. Many distrust mainstream banks and would not use them even if they opened in their neighborhood. Now, we are seeing that there is a generational shift in the check cashing industry and many people want to get out of that businesses. This is where we come in.”
Created by the State Banking Department in 1944, the check cashing industry is at “a tipping point,” said Dillon, as many of store owners want to retire but have no relatives willing to take over.
“It is not a very glamorous business that people just fall into,” she said.