The Illinois Department of Financial and Professional Regulation (IDFPR) recently proposed a double-digit fee increase on check cashing services at currency exchanges. This rate hike would disproportionately impact people experiencing poverty and people who are unbanked, stripping more money from families who can’t afford to spend $45 to cash a $1500 check.
Here are the proposed rate increases:
|Check Amount||Old Rate||New Rate||Percent Increase|
|$100 or less||1.4% + $1.00||2.5% + $1.00||46%|
|$1250.01 or more||2.25%||3.00%||33%|
This rate increase will also disparately impact communities of color. In Illinois, black households are unbanked at a rate 13 times higher than white households. Because people who are unbanked are much more likely to use currency exchanges to cash their checks, we can expect that the burden of the fee increase will fall primarily on families of color.
We joined the Woodstock Institute, who is leading the effort among consumer advocates to oppose the increase, to testify at a public hearing held by IDFPR about the rate hike. Here is an excerpt from Jody Blaylock’s testimony on behalf of IABG and Heartland Alliance:
We have significant concerns about the proposed rate increase and urge you to step back and consider the impact of the increase on Illinois families, particularly families experiencing poverty.
Over one-third of Illinoisans are low-income or living in poverty. The federal poverty level for a family of three is less than $19,000 per year. With such an incredibly tight budget, check cashing fees eats away at already scarce resources, leaving less money for essentials like housing, food, or school supplies over time. And these fees do not exist alone. For families in poverty, fines and fees abound – from parking tickets to court fees – that simply take a higher toll on those with a more limited income than those with means. For low-income families, these costs can feel like death by a thousand paper cuts. Each increase in fees makes it harder to get by and to avoid debt.
What’s more, many low income families are also unbanked, meaning they do not have a checking or savings account. This could be because they do not have enough money to maintain a bank account, because the bank account fees are too high, or for a variety of other reasons. More than 338,000 Illinois households are unbanked, and rely on services like check cashing to manage their money. For these individuals, cashing a check with one of these vendors may be their only option.
The counterproposal offered by the Woodstock Institute is a good place to start rethinking this rate increase. Exempting government-backed checks and limiting the fee on payroll checks would provide some protections for Illinois workers and families who use currency exchanges to access public benefits or their wages. But for people experiencing poverty, it is often more complicated.
For instance, someone experiencing homelessness and who receives Supplemental Security Income may have a designated representative payee for their benefits, because they are otherwise unable to receive mail. So when that individual receives their benefits, it may not be in a government check, but one from the payee. Similarly, families that rely on personal checks from informal jobs or child support checks from spouses, or other vital financial relationships may see more of their income taken. The line is hard to draw, and that extra few dollars for each check cashed adds up quickly for low-income families.
If we really want to make sure that we are not harming families in poverty, the check cashing rate increase needs to be reconsidered in its entirety.
The proposal now moves through a rulemaking process before it becomes law. We will continue to work with our partners to oppose the increase as it moves through that process.