Cheque cashing businesses cash third party cheques immediately, so long as adequate personal identification is provided. They usually charge a flat fee plus a percentage of the face value of the cheque. For example, the charge for cashing a $500 cheque may range between $15 and $20. By contrast, all of the major banks provide low-cost bank accounts with monthly fees of under $4.00.
A 2006 survey indicated that seven per cent of Canadians had used a cheque cashing service over the past year. In Ontario, this would amount to over 800,000 users of these services. Low-income Canadians are disproportionately likely to use cheque cashing services, despite the fact that the fees may have a significant impact on take home pay, reducing the amount of money available for basic necessities. This is of particular concern for persons who are on fixed income, such as those receiving government benefits.
Consumers may use cheque cashing businesses, despite the relatively high fees, for a number of reasons. Some Canadians do not have bank accounts. Some may need the cash immediately, and so have concerns about the holds that banks may place on cheques. Lack of convenient bank locations may also be a factor, particularly in remote or low-income areas. Consumers may also use cheque cashing businesses because of convenience, or the quality of the service.
Several Canadian jurisdictions have taken steps to ensure that consumers are able to receive government payments without the high fees associated with cheque cashing businesses. The federal government has entered into indemnity agreements with the banks so that financial institutions that cash federal government cheques can be assured of payment, and at the same time has required the banks to cash federal government cheques for amounts under $1500 without charge. The province of Alberta has moved towards mandatory direct deposit for government benefits, thus obviating the need for cheque cashing. The provinces of Manitoba and British Columbia have passed legislation that enables them to set maximum fees for cashing government cheques.
The Law Commission of Ontario has initiated a project on fees for cashing government cheques. The purpose of the project is to:
1) examine whether cheque cashing fees are an issue of concern in Ontario, and
2) consider approaches for addressing any concerns regarding cheque cashing fees.
The LCO has developed a Consultation Paper to identify issues and options, and to provide a focal point for discussion and consultation. All interested parties are invited to provide submissions, by Friday, June 13, 2008. Submissions may be sent by mail, fax, or e-mail.
Based on the LCO’s independent research, including the responses to the Consultation Paper, the LCO will issue a Final Report with findings and recommendations in the fall of 2008.
If you have questions regarding this consultation, please contact us at (416) 650-8406.