By Robert Reed, Chicago Tribune
CHICAGO, July 3 -- Many of the state's poorest residents could soon pay more to cash a check at a local currency exchange, courtesy of a rate hike recommended by Gov. Bruce Rauner's administration.
The Illinois agency that regulates currency exchanges has approved double-digit percentage increases of the industry's state-sanctioned check-cashing fees. The hike covers all checks, including government-backed, payroll and personal.
What we have here is a flawed rate increase plan that promises to have an oversized impact on lower-income households already scratching out a living. The burden will fall mostly on people who often must use currency exchanges because their neighborhoods lack affordable retail banking options.
However, there's a chance the increase could be stopped or altered since a bipartisan panel of lawmakers is responsible for "codifying," or legally approving, the agency's action.
Instead of just nodding "yes," legislators should spike this hike and replace it with a more equitable fee schedule that doesn't make poor people a little poorer every time they cash a check at a currency exchange.
"There's still time," says Brent Adams, senior vice president of policy at the Woodstock Institute, an advocacy group that's taking the lead in opposing the scheme.
The basic issue isn't whether the state's estimated 400 currency exchanges, the majority of them in the Chicago area, should get a raise. It's been nearly a decade since the last increase and the cost of doing business has gone up, so some relief is understandable.
But there's also the issue of whether the state's rate hike is fair to those who regularly use these businesses for check-cashing.
On that score, state regulators have looked the other way.
In June the Illinois Department of Financial and Professional Regulation gave the industry exactly what it had requested.
That's worth repeating: The state gave the currency exchange owners everything they wanted.
Represented by law firm Jenner & Block, the Currency Exchange Association of Illinois and the Community Currency Exchange Licensees filed a petition outlining why they need more money. In its ruling, the state enthusiastically stated "there are ample grounds for increasing the maximum check-cashing rate."
Under the plan, cashing a check of $100 or less will cost a dollar and 2.5 percent of the check's face value. That's a whopping 46 percent increase over the current rate.
Checks between $100 and $1,250 will cost 2.5 percent of the face value, an 11 percent jump; checks of $1,251 or more will be charged 3 percent of the draft's amount, a 33 percent hike.
In sanctioning the rate increase, the regulators dismissed a recommendation by Woodstock to temper the fee schedule — especially those rates that apply to government-backed and payroll checks.
Currency exchanges argue their fees are justified because they help insulate them from the inherent risk of cashing third-party checks or doing business with strangers. One bounced or forged check can devastate a store's profitability, they say.
That's true to a point.
While personal checks can present more hazards, government-backed payments are virtually risk-free and shouldn't be grouped into the higher-risk category.
With an increased use of electronic payments, there's been a reduction in government and payroll check-cashing. Yet those who still use paper checks are typically among society's most "economically insecure" and can least afford the proposed rate hike, according to Woodstock.
Woodstock is pushing for a lowered rate system similar to one recently embraced in Pennsylvania. That state trimmed the check-cashing fee for government-issued checks to 1.5 percent of the check amount, from 2.5 percent. For public assistance checks the rate dropped to 0.5 percent, from 2.5 percent.
Besides Woodstock, there didn't seem to be anyone advocating for those who regularly depend on currency exchanges during the rate evaluation process, so more input is needed.
One of the roles of the Illinois Department of Financial and Professional Regulation is to help preserve the currency exchange industry, which in the past decade has felt a decline in the number of outlets. The agency also is mandated to ensure the industry makes what it calls a "reasonable profit."
Hey, who says business and government don't work together in Illinois?
Yes, state lawmakers could take the regulating agency's recommendation and move on. But here's hoping legislators won't amble down a path of least resistance.
The Pennsylvania plan is a good place to begin the re-examination. Lawmakers should also connect with Woodstock, which has been tracking urban retail banking trends for decades. Woodstock's Adams oversaw the state Department of Financial and Professional Regulation between 2009 and 2012.
There are other community activists waiting in the wings eager to discuss this matter too.
Before approving a maximum check-cashing increase, let's review it again.
But this time, do it with an eye toward giving the paying customers a break too.
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