dealing with CCOs

["Forstater, Mathew" <ForstaterM@xxxxxxxx>]

A state senator (D) here is concerned about Commercial Check Cashing Operations
(CCOs).  Studies show that, not surpisingly, folks without bank accounts tend to
be disproportionately poorer, less educated, a member of a racial or ethnic
minority, have more children.  Among the approaches to dealing with the high
fees of CCOs are the following:

1) policies to increase the number of people with bank accounts - require banks
to offer "basic" or "lifeline" accounts, i.e., accounts with no or small fees
and no or small minimal balance requirements

The banking industry opposes this and argues that requiring lifeline accounts
does not increase the number of people with accounts.  There is some independent
research to support this view. Many people do not use savings institutions
because they do not have any financial savings at the end of the pay period
and/or they prefer to transact almost exclusively in cash.

2) regulating CCOs - set ceilings on the fees that CCOs can charge - Some argue
that this will drive some CCOs out of business and if it does, it can actually
hurt some customers wh will have an increased travel expense that outweighs the
decrease in fees.  Also, some CCOs might stop cashing riskier checks, such as
personal checks or paychecks from small businesses. To counter the loss of
revenue to CCOs resulting from ceilings some states have allowed them to go into
other services such as issuing license plates.

3) Postal Savings System - many other industrial nations have Post Office
accounts, the U.S. has done some of this in the past. This is definitely worth
serious consideration, but seems to require national legislation and
considerable institutional modification.

4) asset-buidling strategies - It seems clear the best way to increase accounts
is to increase family wealth. This is an important long term issue but is not
likely to have much effect in the short run

The state senator here is interested in a bill that would require employers to
pay low income employees in cash.  There are a few main arguments against this:

a) There is no paper trail, so can lead to tax evasion. The rise of CCOs was
connected to the increased use of checks due to more stringent bookkeeping and
tax requirements.

b) theft - here both the employer handling the cash and the employees being paid
in cash would be vulnerable

c) some small businesses don't actually handle payroll - their bank handles it
and would be reluctant to hand over that much cash to them

What are the counter-arguments to the main arguments against the pay in cash
plan?

a) As far as the paper trail, a receipt can be issued with the cash that is
similar to the pay stub, outlining the information--taxes taken out, etc.

b) theft - this one is a little more problematic.  But people who use CCOs have
cash in hand and are used to dealing in cash.  So this may actually not be as
bad as it sounds.

c) Banks may be reluctant to accommodate, but if faced with the alternative of
lifeline legislation and other regulation, they may accommodate.

One way to approach it would be to consider a bill that would require (large)
employers to make SOME arrangement so that lower-income employees without bank
accounts can obtain their pay without paying a fee (or a small fee).  There are
several banks that now offer products, similar to an ATM card, that employees
can carry and use to obtain their pay from an ATM machine.  They can do this
without owning a bank account.

I'd be interested in comments on this. Thanks.

Mat