Re: dealing with CCOs

[Michael Perelman <michael@xxxxxxxxxxxxxxxxx>]

This looks like a softball question for Robert Manning.

On Tue, Feb 27, 2001 at 02:24:26PM -0600, Forstater, Mathew wrote:
> 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
>

--
Michael Perelman
Economics Department
California State University
Chico, CA 95929

Tel. 530-898-5321
E-Mail michael@xxxxxxxxxxxxxxxxx