Under-banked clients turning to specialized check cashing operators
But consumer advocates say services expensive and should be performed by banks

Denis Guiol runs a specialty-chocolate business that generates more than $200,000 a year in sales. But when clients pay him, he takes his checks to an instant cashing service bypassing his bank.

"When I cash checks at the bank, they freeze my money for five or six days," said Guiol, president of Milcao Chocolaterie Fine. "But I have to pay suppliers and employees right away. I can't afford to wait."

Guiol is a typical example of what financial professionals call the "under-banked." These tend to be lower income clients, whose needs are not met by traditional banking operations, which have been increasingly focusing on more affluent customers.

Clients like Guiol's company, whose revenues barely exceed expenses, are a low priority. Like about 5,000 other Rapide Chèque clients, Guiol appreciates the convenience, flexibility and service the company offers.

"The staff here are friendly," Guiol said. "They treat you like a person, not a number, like the banks do."

According to another customer, check cashing services also offer longer hours, which gives greater flexibility. For example Rapide Chèque is open from 9:00 to 6:00 workdays, later on Thursdays and Fridays, and is also open on Saturdays from 9:00 to 5:00.

"I often work late and I don't always get the chance to go to the bank," said John Kalomiris, who has been a Rapide Chèque client for three years. "They are open when I need them, and there is a branch close to my home."

Indeed new check cashing branches have been popping up all over Montreal and in cities across the country. According to Larry Modafferi, vice-president and a minority shareholder of Rapide Chèque, the number of outlets has more than doubled in the few years.

"Look across the street, there used to be a bank there, and a Caisse there," said Modafferi pointing. "But both branches closed during the last two years. Where are the customers going to go?"

"The big banks don't care about poor neighborhoods," Modaferri said. "All they want are upper middle-class suburban people who besides their bank accounts are also going to buy RSPS, mutual funds and take out mortgages."

But Modafferi isn't complaining. He foresaw the trend almost a decade ago. In fact he wrote one of the first software programs used in running a check-cashing operation. He used the money he made from the selling the software to get into the business himself.

Today Rapide Chèque has four branches, each of which cashes about 400 checks a week, double the volume of just two years ago. The company charges a fee equal to 2.5 per cent of the check's value. The vast majority of the company's business comes from paychecks earned by lower middle class workers Modafferi said.

Probably the biggest check cashing business in Canada is Vancouver-based The Money Mart Company, which operates 250 outlets including 30 in Quebec. The company charges a slightly higher rate than Rapide Cheque, (2.99 per cent) and also charges a services fee. But the company has good branch locations which somewhat justify the higher fees.

Despite the fact that check cashing branches are located in poorer neighborhoods, welfare and EI checks form only a small percentage of their business in Quebec. Indeed these companies are forbidden from charging fees for government checks by the province's consumer protection legislation. As a result, many will only cash government checks from regular clients.

According to one consumer rights advocate, the fees charged by check cashing operations may seem small, but they can add up.

"Banks charge minimum monthly fees to maintain an account, starting from about $4.00 a, so many people think that its cheaper to use a check cashing service," said Stéphanie Poulin, a lawyer with Option Consommateurs. "But for a $500 check a 3.0 per cent fee works out to a $15,00."

"Bank accounts are no longer a luxury," Poulin said. "In today's economy they are a necessity. And if the banks were better serving their clients, there would be no need for these types of services."

Jean Roy, a professor at HEC agreed, but nuanced his arguments. "These institutions service very high risk customers, and they have to be compensated for that," Roy said. "Its true that from the point of view of the customer, the prices appear high. But we have no information about their internal costs, and the fees may well be justified."

The Canadian Bankers Association does not have a formal position on check cashing services said an organization spokesperson. But he added that in most cases clients could get a cheaper check cashing services by opening a bank account. .

However one bank make its position on check cashing services quite clear. Late last year Royal Bank of Canada opened its own check cashing outlet called Cash and Save in downtown Toronto. The outlet also provides bill paying, money transfer and money order services. At the moment the project is just a test, but it could lead to more outlets down the line.


Photo caption: According to Rapide Chèque clients like Denis Guiol, check cashing services provide a flexibility and better hours than the big banks.



Sidebar: Want to get your check cashed?

o Check cashing services generally charge a fee of between 2.5 and 2.99 per cent of the check cashed.
o Critics say that these charges may not seem high, but they add up during the course of the year, and are often more expensive than the cost of operating a bank account.
o Many check cashing services do not cash government checks, such as EI and welfare benefits.
o All banks are required to cash federal government checks for free. In Quebec and in three other provinces banks are also required to cash provincial government checks.





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