Being broke is a temporary situation. Being poor is a state of mind.
— Mike Todd

Another entry in our financial Hall of Horrors — Check Cashing! One of the sure hallmarks of a scary neighborhood — along with bars on residential windows, the constant sound of sirens, and bulletproof windows at gas station booths — are big, brightly colored signs, saying “Checks Cashed! No ID Required!”

Check Cashing storefronts proliferate like rats in blighted neighborhoods in order to feed off the poor. It’s hard to imagine a more cynical, exploitative business.

A Story From my Misspent Youth

Let me tell you a little story about the one and only time I ever walked into one. I was 19, blessed with a 19-year-old’s naïveté, and had my dad’s Christmas present in my pocket — a check for a couple hundred bucks. In other words, I was rich!

I was home from college, visiting family. It was the weekend, and the banks were closed. These were the days before universal ATM access (God, am I that old?), and my bank had no location in town. I was dying to get my hands on the cash for some reason that seemed extremely important at the time, but which I can’t for the life of me remember, now. I’d also, foolishly, allowed my ID to expire. What a pickle!

Then I remembered — the neighborhood Check Cashing place would cash that check, with no ID. Plus, they were open 24/7! Problem solved!

I walked in the door, but before I handed over my precious Christmas check, I had a moment of sanity. I asked the friendly person manning the counter (behind bulletproof glass, of course), “Hey, what’s you guys’ commission, anyway?”

The friendly look on her face changed to befuddlement. “Our what?” she asked. I got the impression that she had never actually been asked that question before. At least not in that way.

“Your commission. You know, what are you going to charge me.”

“Oh, I see,” she said. “We charged fifteen dollars per hundred dollars in the check.”

I blinked. “Wait, what? You charge Fifteen percent?”

“Fifteen per hundred,” she said.

“Which means fifteen percent,” I said.

“If you say so,” she said, and smiled tightly.

I left, wondering in my glorious 19-year-old’s naïveté how such a place could stay in business. How could anyone be so stupid as to pay 15% to get a check cashed? Let alone enough people to allow this place to stay open? 24/7, even?

I then went on and did whatever 19-year-olds do (I’ve long since forgotten), and managed to get through the weekend without cashing the check.

Older and Wiser

My older, wiser, grumpier self has some answers for 19-year-old Sean’s naive questions. First, 15% is pretty typical for these places (yes and no, see update below). As you might have guessed, fraud is pretty common at no-ID check cashing establishments. Guess who picks up the bill for that?

Second, at 19, not cashing my check meant a few less treats during a weekend home from college. To a member of the working poor, however, not cashing a check may mean no groceries for their family. That person may not have a bank account where they can deposit the check come Monday, because no bank will give them one. They may be an illegal immigrant, and thus have no ID they can use to cash their check at a more traditional location.

There are a hundred different reasons why a person who is down on their luck may wind up thinking (usually incorrectly) that they have no other choice. There must be, after all — because there sure are a lot of those places around. Exploiting the poor is a lucrative trade.

And don’t make the mistake of thinking these are mom-and-pop businesses, either. Nowadays, many check cashing storefronts are owned by the very same banks that find reasons to refuse to give the working poor traditional accounts in the first place.

Alternatives

I doubt any readers of this blog will ever find themselves in a position where they absolutely must have a check cashed quickly, and can’t get to a bank or ATM. If it does happen, though, I’m sure it will come as no surprise to you that I recommend other options:

• Walmart is open 24/7, and will cash payroll and some government checks for up to $1000 for a flat fee of $3, and for up to $7500 for $6.
• Safeway will often cash non-person checks. Their commission is a little over 1%.
• The issuing bank, i.e. the bank the check writer used, will usually cash it for you for free if you show up during business hours. This works for personal as well as payroll checks.

All three of these options require an ID and possibly a social security number. If you’re stuck without those, as well (we’re getting more and more far-fetched here, but what the heck), some prepaid card providers allow for direct deposit to your prepaid balance — it can serve as a last-ditch alterative to a real bank account.

Whatever you do, though, don’t let yourself fall prey to a Check Cashing storefront — even if you have to go without treats for a whole entire weekend to avoid it.

I know, things are tough all over.

Update

As James pointed out in a comment below, a number of states now regulate check cashing fees to some extent. According to this site, 24 states now have at least some level of restriction on check cashing fees.

Of the states that regulate, more than half still allow fees of 10% or more on personal checks, but the fee limits tend to be more restrictive on government and payroll checks (which makes sense).

The remaining states still have no limits at all on what fees can be charged, though, so it’s a good idea to find out what the rules are in your particular state.

James is correct that I really should have thought to look this up before posting the original article.