Christen Carter doesn’t have a bank account, so when he needed to cash his $344 paycheck last week, he went to a West Side currency exchange. He paid $7.74 in fees — money he says he can’t afford to lose. And now, the fees could be going up.
That’s because a group of Illinois lawmakers could approve a recommendation on Tuesday by Gov. Bruce Rauner’s administration to increase check cashing fees at currency exchanges across the state.
Carter hadn’t heard about the potential increase. If the new rates become law, he would be charged $8.60 for the same check, an extra buck a week.
“I’m already stretched a little thin with my pay as it is. I’m not making too much,” Carter said. “That would just put me back in the hole, you know, with paying my phone bill, rent, and I have two children as well, so it adds up.”
Ahead of the potential increase, WBEZ took a closer look at the details of the proposed rate hike.
Why do currency exchanges need extra cash?
Currency exchanges are known for charging high fees to customers who often can’t afford them, but owners say fewer people are cashing checks these days, and the fee increase is necessary to bolster declining revenues and rising operating costs. There are 203 fewer currency exchanges in business now than there were in 2008, according to state regulators.
“The number of units that we’ve cashed has gone down, our expenses have gone up dramatically,” said Martin Lieberman, president of the Community Currency Exchange Association of Illinois. “And we can’t raise our rates because we’re not allowed to.”
What do currency exchanges do?
Beyond check cashing, currency exchanges provide a wide range of financial services. They issue city vehicle stickers, sell money orders, allow people to pay utility bills, and more. But even as revenues decline, check cashing remains the biggest part of the currency exchange business, Lieberman said.
Currency exchanges serve vital financial needs, Lieberman said, especially in communities that don’t have adequate access to regular banking.
“When the currency exchange closes, that community is forced to look elsewhere, which means getting on a bus or getting in their automobile, and driving four, five, six, or seven blocks to the next currency exchange,” he said.
Since it was first proposed last year, some consumer advocates have pushed back against the potential fee increase.
“The rate hike would, with almost surgical precision, harm the people least able to afford to prop up this industry,” said Brent Adams, senior vice president of policy for advocacy group the Woodstock Institute. “And by that, I mean folks who do not have bank accounts, who are predominantly lower income and people of color, working age people with disabilities.”
What’s the current fee cap? How much would it go up?
The maximum rate would increase from 1.4 percent to 2.5 percent for checks under $100, including a $1 fee which stays the same. For checks between $100 and $1,250, the maximum would increase from 2.25 percent to 2.5 percent.
The proposed rates also include a new fee tier for checks over $1,250, which has a maximum of 3 percent. The most a currency exchange could charge for a $2,000 check under current rates is $45 — under the proposed rate, it would rise to $60.
Who will be affected by the proposed increase?
It would affect the estimated 350,000 households in Illinois that the Federal Deposit Insurance Corporation classified as “unbanked.” Simply put, that means no one in the household had a checking or savings account.
The reasons people are unbanked vary, and can range from bad credit and a history of fraud to a lack of trust in or physical access to banks and other financial institutions. Carter said he goes to a currency exchange because his bank account was frozen after a series of overdrafts, and he can’t afford to pay back the charges.