Troubled currency-exchange industry finds favor with Rauner administration – Finance News

on Jun22

22 June 2017 | 10:30 am

A third of Illinois’ currency exchanges have disappeared in the last decade, so the Rauner administration has agreed to the industry’s plea for help in the form of higher check-cashing fees.

In response to an industry petition filed earlier this year, the Illinois Division of Financial Institutions on June 19 approved a double-digit increase in the cap on how much currency exchanges can charge to cash checks.

Currency exchanges provide an important service, particularly in lower-income neighborhoods without many, if any, bank branches. Residents who aren’t bank customers often use them to pay bills and cash paychecks and government checks.

The industry argued over the objections of consumer advocacy group Woodstock Institute that it needed to charge more due to a substantial decline in the volume of check-cashing as even lower-income households turn more to prepaid cards and similar alternatives to checks. It’s the first increase in the cap in a decade.

THE DETAILS

The hike is particularly pronounced for lower-dollar checks. Currency exchanges now will be allowed to charge a dollar plus 2.5 percent of the check amount to cash checks of $100 or less. That’s a 46 percent increase over the current dollar plus 1.4 percent.

For checks between $101.01 and $1,250, the rate is climbing 11 percent to 2.5 percent of the check amount from 2.25 percent. And for higher-dollar checks than that, the rate is rising 33 percent to 3 percent from 2.25 percent.

The industry argued these increases will help offset a dramatic slide in profits while still keeping Illinois’ allowed check-cashing fees lower than those in most other states. Profits per location as a statewide average dropped 45 percent to $9,986 in 2015, the last year for which the state has figures, from $18,244 in 2008.

The average check cashed at a currency exchange is about $550, the industry says. A customer will pay $13.75 to cash that check at the new rate compared with $12.38 before.

FEWER EXCHANGES

At the end of 2016, there were 393 currency exchanges in Illinois compared with 580 in 2008. The volume of checks cashed in that period fell more than 40 percent.

Even so, check-cashing still accounts for about half the industry’s revenue.

“The huge loss in the number of currency exchanges strongly points to a serious problem in the industry—the inability of currency exchanges to make a reasonable profit or a profit at all in light of competitive pressures, decreasing revenues and an inability to reduce expenses,” according to the petition filed with the state by Community Currency Exchange Association of Illinois.

The Woodstock Institute, which opposed the petition, allows that the industry may be challenged. But it thinks some of the justifications for higher rates aren’t valid.

In particular, the industry talks about the risk it takes in cashing checks that turn out to be fraudulent.

Woodstock says there’s virtually no risk of that with government-issued checks, for example. So it’s calling for different tiers of fees: lower ones for low-risk checks and higher ones for riskier personal checks.

“For many of the checks they cash, there’s no risk,” said Dory Rand, president of the Chicago-based group.

Twenty-one of the 25 states that regulate check-cashing fees stratify checks in that way, Woodstock said.

In its order, the division didn’t address that argument. Instead, it said the industry “presented compelling evidence” to back up its petition.

The new caps still require a review by a panel of state lawmakers before they take effect. Woodstock intends to lobby the Joint Committee on Administrative Rules for its proposal when the 12-member panel scrutinizes the new fee caps, Rand said.



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