“Costly Nuisance” Hits Low- and Moderate-Income New Yorkers Especially Hard
Community, legal services, and neighborhood organizations spoke out in strong support today of a new NY Department of Financial Services regulation to cap and limit future increases in check cashing fees at check cashing businesses throughout the state. The new regulation caps check cashing fees at 1.5% for cashing government benefits checks, and at 2.2% or $1, whichever is greater, for payroll, personal and other types of checks. In addition, the regulation ends the practice of granting automatic increases in check cashing fees based on the Consumer Price Index (CPI), and creates a data-driven review process for DFS to approve or reject future industry requests for fee increases.
The groups had urged the Department to take action in a regulatory comment letter signed by 17 organizations from around the state in September 2022. Since that time, an additional 9 organizations have expressed support for the positions expressed in the comment letter.
Low- and moderate-income New Yorkers rely heavily on check cashing services — but high fees can take a substantial bite out of their paychecks and government benefits checks. Check cashing customers often lack access to mainstream banking services, and include many immigrants, people of color, and people living paycheck to paycheck.
“Working class New Yorkers deserve strong consumer protections from steep check cashing fees that eat away at household budgets for groceries, medicine and rent,” said Chuck Bell, programs director for Consumer Reports, one of the groups that supported the proposed regulation. “Community, legal services, senior and neighborhood organizations support tight limits and stronger ground rules for check cashing fees, because we know any future increases will be extremely burdensome for New York’s most vulnerable residents.“
“We applaud Superintendent Adrienne Harris for leading the Department in studying the fees check cashers charge to consumers and proposing a rate that is more rationally related to industry costs,” said Kirsten Keefe, Senior Attorney, Empire Justice Center. “Historically higher rates drain way too much money from low-income New Yorkers who have to use these services to access their paychecks, social security or other public benefits.”
“The decision by the New York State Department of Financial Services to cap and limit future increases in check cashing fees at check cashing businesses is a victory for consumers, including many older New Yorkers whose financial safety net is already frayed by inflation and rising costs for daily needs, said Beth Finkel, State Director, AARP New York. “This new regulation takes the business perspective into consideration, while also ensuring that consumers are protected from the needless escalation of fees for check cashing services. It provides another layer of protection from high-cost and predatory financial services companies looking to strip wealth from older, unbanked New Yorkers vulnerable to exploitative and costly financial services practices.”
“As advocates for financial and economic justice, we strongly support the New York State Department of Financial Services’ amendment to its check cashing regulations,” said Nada Khader, Director of the WESPAC Foundation in White Plains, NY. “Low and moderate-income New Yorkers need protection from predatory check cashing services, and must not be unfairly burdened by fee increases that they can ill afford.”
“Financial fees are not just a nuisance, they are a costly nuisance that hits low and moderate-income consumers especially hard,” the 17 organizations stated in their September 2022 comment letter. “…The incomes of low- and moderate-income New Yorkers often do not increase at the same rate as the Consumer Price Index, and tend to lag behind the increase in prices for housing, transportation, groceries and other goods and services. For all these reasons, it is highly appropriate for the New York State DFS to closely scrutinize whether specific increases in check cashing fees are justified by the underlying cost and expense of providing that service, and industry profitability requirements.”
An estimated 90% of money order, bill payment and check cashing users in New York have incomes of less than $75,000, according to the FDIC. Of that amount, 55% have incomes of less than $25,000. Younger households, and Black, Latino and Native American households are more likely to use check cashing services, as are low-income households and those with more volatile income, the FDIC said.
In 2016, two researchers estimated that a New York breadwinner living in a household of three with an annual income of $20,000 would pay $400 a year (2% of their income) in check cashing fees.
The issue was also highlighted during the COVID pandemic, when Jonathan Mintz of the Cities for Financial Empowerment Fund estimated that a family of four would pay $127 in fees just to cash their COVID stimulus checks in March 2021.
Currently, a senior or disabled New Yorker cashing an average sized Social Security check of $1,500 can be charged up to $34.05 in check cashing fees. With the new DFS regulation, the fees would fall to $22.50, or 1.5% of the value of the check. Over the course of a year, New Yorkers would save $138.60 in fees ($408.60 – 270.00) for cashing 12 Social Security checks of this size.
To cash a monthly paycheck for $2,666, for a customer with an annual $32,000 in take home pay, customers currently pay a maximum of $60.52 in fees per month (2.27%), or $726.22 over the course of a year. The DFS regulation would slightly reduce the maximum fee amount to 2.2% of the value of the check, so that the new maximum monthly fee for a $2,666 payroll check would be $58.65, a savings of $1.87. The new annual fee total for cashing 12 checks of this size would be $703.82, an annual savings of $22.89. While this is a very modest reduction, the new regulation would help ensure that future increases will be subjected to stricter DFS review and approval standards, to potentially limit future increases that customers may not be able to afford.
Media Contact: Emily Akpan, firstname.lastname@example.org
Organizations that Signed the September 15, 2022 Regulatory Comment Letter
American Debt Resources, Inc.
Center for Elder Law & Justice
City Roots Community Land Trust
Empire Justice Center
Fifth Avenue Committee
Housing and Family Services of Greater New York
Long Island Housing Services, Inc.
Margert Community Corporation
New Economy Project
New Yorkers for Responsible Lending*
Rensselaer County Housing Resources, Inc.
Teamsters Local 237
Troy Rehabilitation and Improvement Program, Inc.
WESPAC Foundation, Inc.
Western New York Law Center
*New Yorkers for Responsible Lending is a statewide coalition of over 150 organizations concerned with fair financial services and financial justice.
Other Organizations Expressing Support for Positions in the Group Regulatory Comment Letter
AARP New York State
Association for Neighborhood & Housing Development
Brooklyn Cooperative FCU
Brooklyn Cooperative Federal Credit Union
BWICA Education Fund
Community Service Society of New York
Cypress Hills Local Development Corp.
For the Many
Genesee Co-op Federal Credit Union
New York StateWide Senior Action Council
Northeast Brooklyn Housing Development Corp
Individual Supporters (Organizations Listed for Affiliation Purposes Only)
Gina Calabrese, Consumer Justice for the Elderly: Litigation Clinic of St. John’s University School of Law
Carlos Santana, Action for A Better Community
Delia Marx, Westchester Cooperative Network