More than 19 percent of New Jersey households avoid banks or do not always use them, according to a federal survey, sometimes turning to pricier alternatives. Now, one common option - cashing a check through a check-cashing business - could end up costing more.
Check cashers in New Jersey take as much as 2 percent from payroll and personal checks. But a proposal before the state Department of Banking and Insurance, which regulates the industry, would hike that fee to 2.21 percent. It would be the first increase since 1993.
A public comment period ends Feb. 19, after which the department commissioner will review the changes and make a final decision, department spokesman Marshall McKnight said Wednesday.
Meanwhile, the 1.5 percent maximum fee that can be deducted from Social Security or Supplemental Security Income checks would not increase under the proposal.
Bankers, banking regulators and consumer advocates say they want to steer more people toward "mainstream" products that provide affordable credit and lower financial risk.
As part of its first comprehensive survey on so-called unbanked households, the Federal Deposit Insurance Corp. reported last month that about 30 million U.S. households either have no bank account or still use check cashers, payday lenders or a nontraditional outlet in addition to having a regular savings or checking account.
The main reasons why people may not have a bank include not making enough money to need an account, not seeing the value in having one and bank service fees being too high, the FDIC said.
Households instead turn to alternative establishments mainly for convenience in being able to place a money order or cash a check. In addition, qualifying for a regular bank loan can be more difficult than going through a pawn shop or using a payday lender, some households said.
But banks say being one of their customers can make applying for a loan easier and allows access to credit and debit cards. Some have been trying to attract people who are bankless by extending hours, hiring bilingual tellers or opening branches in supermarkets or low-income neighborhoods.
To hold on to customers, check-cashing businesses have tried to boost their services as well.
Five years ago, the Casino Hotel Employees Check Cashing Service, which serves casino and noncasino customers in Absecon, Atlantic City and Pleasantville, became the first in the state to sell prepaid debit cards that are linked to an interest-bearing savings account insured by the FDIC.
In addition, check cashers typically offer several services, including money orders, money transfers, utility bill payments and in other states, payday loans. (In New Jersey, such short-term, high-interest loans are outlawed, although residents are still able to obtain them online.)
The state is weighing whether to increase check-cashing fees, in part, as a way to benefit such businesses, which are licensed by the state and have been under more scrutiny since 2001. As part of the USA Patriot Act, check cashers have had to comply with federal anti-money laundering rules that require them to pay for compliance reviews, train employees and update record keeping.
That is on top of the general increases in insurance, payroll and rents, said Art Roth, owner of Casino Hotel Employees Check Cashing Service, which has 20 employees.
"Conversely, the number of checks (received) has gone down," said Roth, who serves on the board of the Financial Service Centers of America, an industry trade group based in Hackensack.
He declined to provide revenue figures for his business, but said it is has decreased from a year ago.
Nationwide check cashing revenues are estimated at more than $1.6 billion per year. There is a general consensus that less money is exchanging hands as more people are laid off from their jobs and subsist on smaller unemployment checks, said Scott McClain, an attorney for the Financial Service Centers of America.
He added that even before the recession, the industry was affected by people choosing to have their paychecks deposited into bank accounts electronically.
"Business is definitely off from previous years, but it's not a dramatic decrease," McClain said.
Roth said the majority of his customers still use a traditional bank, but what his business offers is competitive prices and convenient hours. His Pacific Avenue store in Atlantic City stays open 8 a.m. Thursdays to 1 a.m. Sundays.
"For that mother who gets out of her casino job late at night and needs to make a transaction, we're there for her," Roth said.
Benjamin T. Griffith, president and CEO of South Jersey Federal Credit Union, said if people do their homework, they also can find institutions that offer no minimum account fees and lower interest rates.
"People have alternatives, rather than going to check cashing and things of that nature," Griffith said. "As a credit union, we can give people a second chance if necessary. We don't turn people away just for the sake of saying, 'You've been a bad risk for the past five years, so we're not interested in you.'"
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What other states charge
State comparison of maximum check-cashing fees
Pennsylvania: 3 percent
New Jersey: 2 percent (may change to 2.21 percent)
Delaware: 2 percent
New York: 1.75 percent
Source: New Jersey Department of Banking and Insurance