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CFPB Must Cover Check Cashers and Payday Lenders

Submitted by on March 22, 2010 – 2:48 pm

This information is courtesy of AFR member Consumer Federation of America.

Payday Lending should be covered by the Consumer Financial Protection Bureau!

Payday lending is predatory lending. Loans are extremely expensive, made without determination of ability to repay, trap borrowers in debt, and put a valuable family asset at risk. Loans based on a lender having direct access to a borrower’s next deposited paycheck or benefit check are the modern equivalent of a wage assignment and should be considered an unfair and abusive product. Congress put payday loans off-limits to Service members in 2006. The CFPB should be empowered to examine this product and take action to protect all Americans against this predatory small loan product.  Read more about payday lending.

Check Cashers should be covered by the Consumer Financial Protection Bureau!

The Consumer Financial Protection Bureau should provide uniform consumer protections across similar products. Consumers who “bank” at the corner check casher should be assured of an equivalent level of protection as more affluent consumers who use federally insured banks and credit unions to conduct routine financial services. These outlets sell many of the high-fee, low protection payment and credit products on the market. Sales practices, advertising, disclosures, and redress should be subject to the CFPB as well as the terms and protections for the specific products sold.

More about Check Cashing:

What are check cashers? Retail outlets provide financial services for a fee, typically to unbanked or under-banked consumers. Services include cashing checks for a fee, selling money orders and prepaid debit cards, making payday loans, providing wire transfer and bill payment services. These are also called money services businesses. In the two-tiered financial services market, corner check cashers function as “banks” for low and moderate income consumers.

The check cashing industry: There are an estimated 13,000 check cashing stores. Its trade group reports that check cashers handle 350 million transactions worth $106 billion to over 30 million consumers yearly. Check cashers sell about 86 million money orders and wired 21 million money transfers worth $8.3 billion a year. They sell over 2.8 million prepaid cards with over $5.3 billion loaded onto the cards. The majority are independent storefront operations or small local chains. Nine national check cashing companies control less than 35 percent of the national market.

Key features of products: Check cashers charge a percentage of the face amount of checks, depending on state limits and the type of check being cashed. A CFA survey in 2006 found that the average fee to cash a government benefit check is 2.44 percent of the check or $24.45 to cash a $1,002 Social Security check. The fee to cash a tax refund check averages 2.78 percent while check cashers charge 2.52 percent to cash a computer generated pay check and 4.11 percent to cash a hand-written pay check. About half of surveyed check cashers cash personal checks and charge an average 8.77 percent to do so. Prepaid debit cards are an expensive “bank account in your pocket.”

Why check cashers and their services raise issues for consumers: Consumers who use check cashers instead of banks to conduct routine financial business are typically low to moderate income who can least afford high fees and risky products. Check cashers are found in neighborhoods where bank branches have closed. While most financial services provided by check cashers are useful and legitimate, these outlets function as “banks” for vulnerable consumers. As money services businesses, check cashers are subject to federal money laundering and privacy rules. Check cashers are subject to state licensing or registration in thirty-three states and the District of Columbia. Some products sold by check cashers have inadequate consumer protections, such as payday loans and prepaid debit cards.

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