Currency exchange rate hike to hit the unbanked with more fees

Currency exchange rate hike to hit the unbanked with more fees

February 6, 2018

Angelica Rosales

Photo by José Alejandro Córcoles

Angelica Rosales turned to using currency exchanges for financial services after her bank kept hitting her with low-balance fees.

Angelica Rosales’ seasonal minimum wage job often left her short on money. After paying rent and other bills, she never had enough left in her checking account to avoid her bank’s low-balance fees.

Rosales eventually began using currency exchanges to cash her paychecks, pay utility bills and purchase money orders for her rent. But those transactions cost her $100 a month in fees. “That’s a whole week’s worth of food that these people are taking out of my babies’ mouths,” Rosales says.

Now she and other Illinois residents who rely on currency exchanges are poised to take a bigger hit to their wallets. A legislative panel is likely to approve a proposed increase in check-cashing fees at its Feb. 13 meeting. Opponents say the increase will disproportionately hurt lower-income people of color, like Rosales, who have been driven out of mainstream banking by high fees and into currency exchanges.

A Chicago Reporter analysis found that currency exchanges are most common in low-income African American areas, followed by Latino communities. For instance, the 60651 ZIP code includes parts of Austin and West Humboldt Park and has a mix of black and Latino households. That ZIP code has six currency exchanges, but just one bank.

If the rate hike is approved, for example, the cost to cash a $100 check would increase from $2.40 to $3.50. The cost to cash a $500 check will go from $11.25 to $12.50.

Proposed currency exchange rate increase

Former rate            Proposed rate            Check amount            Percent increase            
1.4% + $1.002.5% + $1.00$100 or less46%
2.25%2.5%$100.01 – $125011%
2.25%3.0%$1250.01 or more33%

Source: Woodstock Institute

Advocates point out that the rate increase illustrates how financially vulnerable low-income residents are hit hard by fees and fines that quickly add up, says Tracy Occomy Crowder, a senior organizer with Community Organizing and Family Issues. Her group opposes the hike.

“A lot of these fees kind of build, like parking tickets. They start out at one amount then it doubles…. It keeps families from moving ahead,” Crowder says. “It is giving them less access to their actual earnings. People just kind of need every penny that they make.”

In response to the likely increase, State Sen. Jacqueline Collins (D-16) has introduced a bill to lower and cap rates and provide consumer protections against future increases. Previous attempts to pass similar legislation failed to gain traction in the General Assembly.

Brent Adams of the Woodstock Institute, a nonprofit advocacy group that has been fighting the rate hike since June 2017, calls the increase “a rate system that targets lower-income folks and communities of color. It would be difficult to devise a system that would be more regressive than this one.” Woodstock and other groups in late January began a last-minute campaign to pressure the bipartisan Joint Committee on Administrative Rules to block approval of the rate increase.

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