Protecting Yourself from Check-Cashing Traps

Check-cashing businesses provide short term, very high interest loans called “Pay Day loans,” cash your checks (sometimes taking a hefty fee), and provide other financial services.   They tend to be located in lower-income neighborhoods and serve people, such as recent immigrants, who do not have a checking account at a bank.  Generally, these businesses charge their customers extremely high fees to perform these services. 

If your financial choices are currently limited, try one of these alternatives to check-cashing companies:

• Cash your check at the bank from which it was drawn, if possible.
• Comparison-shop; about one-third of the check-cashing industry (about 6,000 businesses) is owned by six companies.
• Start managing your finances so that you can save the money needed to open a checking and/or savings account. Many banks offer no minimum or low minimum bank accounts so you won't have to save much to open an account.

High-Cost Cash Advances

Check-cashing businesses also offer their own types of loans: small, short-term loans that carry extremely high interest rates, also called Payday Loans. A six-week $200 loan from one of these companies, for example, can cost $165 in interest and fees. Bottom line: You borrow $200. In six weeks, you owe $365 – that is almost 185% of the original amount borrowed!