Finance on the Fringe

America's check cashers don't exploit the poor; they serve them.

Michael W. Lynch from the April 2002 issue

(Page 2 of 4)

The roughly 11,000 check cashing outlets in the U.S. have evolved into financial portals where lower-income Americans cash $55 billion worth of checks each year. (By contrast, banks clear $48 trillion in check payments annually.) The stores offer a range of services, few of which are offered by banks -- and none of which banks can offer at competitive prices. Some banks are slowly moving into the market niche. But if they are going to succeed, they'll end up looking and acting more like check cashers than banks.

Check Out the Choices

Consider the block where Anna sits in downtown New Haven. A diverse ecology of financial services flourishes on the street, with banks and check cashers both present. That same proliferation of options is also evident a mile and a half west on Whalley Avenue, a bustling, albeit low-end, New Haven artery that's packed with dollar stores, pharmacies, fast food franchises, auto repair shops, antique stores, banks, and yes, check cashers. Shaw's Supermarket, which opened in 1998, anchors a new shopping center complex, a 10-minute walk from the center of the Yale campus. A Hollywood Video, Rentown, and laundromat share the large parking lot and serve the low-income neighborhoods along this section of Whalley Avenue.

Check King sits across the street from Shaw's, which houses a Fleet Bank with extended hours. Shaw's operates its own check cashing outlet as well, for those who have successfully cleared two checks at the store and have a Shaw's discount card. It charges nothing to cash patrons' checks and sells money orders, lottery tickets, prepaid phone cards, and Western Union wire transfers. If you wanted to cash checks on the cheap -- combine the best of banks and check cashers, getting immediate access to your money without a fee -- Shaw's could be a one-stop shop.

If lack of access to banking services is what drives people through the doors of check cashers, then the one-two punch of Shaw's check cashing outlet and its Fleet Bank branch should have knocked Check King out of business a long time ago. Or, at the very least, bruised it. Yet according to Jim Consiglio, who has owned and operated Check King for the last 11 years, he hasn't been touched. Nor have the banks that sit just a few blocks away from Check King affected Consiglio's business, which is a family affair. (His parents and three sons help him shovel cash under a Plexiglas partition to Check King's customers.)

"I am not in competition with banks at all," explains Consiglio, an energetic 50-year-old who sports a diamond earring and tightly trimmed goatee. "They don't do what we do. They're in the lending business and the savings business. Cashing checks costs them money."

It's hard for some people to accept, but Consiglio is right: While some services overlap, the core businesses of banks and check cashers are distinct. Check cashers advance people -- pretty much anybody -- money for checks, a service for which they charge a fee. Banks, in general, give their customers access to their own money. While some banks may immediately cash some government checks and many will cash checks drawn on their own accounts, they are not in the check cashing business. If a bank customer shows up on Friday with a $500 paycheck and $50 in her account, she'll get $50. If she shows up at Check King, she'll get $490. "We put our own money on the counter every day," says Consiglio. "We take risks that banks don't."

Selling Quick Cash

This immediate access to cash -- the storeowner's cash -- explains why many people who have bank accounts also use check cashers. "It's easier -- you're in and out in a hurry," says 30-year-old Nancy, as she leaves X-Bankers with cash in hand. She's headed next door to get her nails done. She has a checking account that she sometimes uses to pay rent. Other times, she uses money orders.

The difference between conventional banking and check cashing explains why a Fleet Bank opening across the street didn't cut into Consiglio's business. It also explains why Consiglio felt it when Connecticut State Check Cashing Services, a privately held chain that operates 19 stores, opened a store a half-mile west of Check King. "There's no way around it," he says. "A lot of people live up there."

Check King, like other check cashers, is a combination of many familiar businesses: bank, Mail Boxes Etc., corner store and video arcade. Consiglio sells smokes at $4 a pack, buys gold and diamonds, and dispenses candy and sodas from machines. Like the check casher up the street, he'll wire in customers' utility payments for free and sell them envelopes, stamps, and money orders to pay other bills. He rents mailboxes and sells phone cards. While we talk for nearly an hour on Christmas Eve, three men come in to play his Ms. Pac-Man. Others purchase Lotto tickets.

Protesting Profits

Cashing checks accounts for 65 percent of Consiglio's cash flow, and it's the core service that brings in customers, who cash a total of around $500,000 a week. He charges 2 percent of the face value of payroll checks, 1 percent for government checks. Like other check cashers in Connecticut, where fees are capped by the state at 2 percent, he won't cash personal checks. He relies on the telephone and on an eye trained by expensive experience to ferret out bad checks. Any check not generated by a computer is suspicious, as is a low number on a check. (The latter indicates a fresh company whose payroll account may or may not be funded.) For suspicious checks, he'll call the issuing bank or company. But he's open long after banks are closed, so he often has to make snap judgments. He says fewer than one in 1,000 checks bounce. He's come by his skill the hard way -- from a pile of bad checks in the back office.

While Consiglio's Check King has never been picketed by protesters, he's aware of the gripes against his sort of business. "We are the black sheep of the financial service industry, no doubt about it," he says with a smile. "I'm not standing on a soapbox saying I'm doing anyone a favor. I'm making money. Activists can yell all they want."

And yell they do, if not at Consiglio personally, then at his fellow check cashers. Or at banks for not operating as check cashers and, in some cases, for operating as check cashers. Or at anyone else who provides financial services in the low-income market. (See "Legal Loan Sharking or Essential Service?," page 38.)