Cheque Cashing Services
• Services offered: Cheque cashing businesses offer a range of services targeted to low and moderate income consumers, including payday loans, wire transfers, money orders, tax preparation and refund, and stored value debit cards.
• Number of businesses: It is estimated that there are over 700 of these Alternative Financial Services (AFS) storefronts operating in Ontario today.
• Regulation: Ontario has moved to regulate the payday loans services provided by AFS businesses with the recently passed Bill 48, the Payday Loans Act, 2008. However, cheque cashing services in Ontario are currently unregulated.
• Fees: Cheque cashing businesses usually charge a flat fee plus a percentage of the face value of the cheque. The cost of cashing a $500 cheque at an AFS business ranges between $15 and $20.
• Banking fees: The monthly cost of a basic bank account providing deposit, withdrawal and cheque writing privileges is under $4.00.
• Cashing federal government cheques: Federal government cheques for $1,500 or under can be cashed without fee at any bank, regardless of whether one is a customer, upon presentation of appropriate identification.
• Customers: Users of AFS businesses are disproportionately likely to be young, low-income, and to report having no one to turn to for financial assistance in the face of financial difficulties. Resident of Northern communities are almost twice as likely to use AFS businesses as Canadians in other regions. Users of cheque cashing services in particular are disproportionately likely to not have an account with a bank or credit union.
Recipients of Government Cheques
• Number of social assistance beneficiaries: In March 2008, there were 372,018 beneficiaries of the Ontario Works social assistance program, approximately half of them members of lone parent families. There were 332,627 beneficiaries of the Ontario Disability Support Program, over half of whom are single individuals.
• Number of cheques issued: The Ministry of Community and Social Services issues approximately 3 million social assistance related cheques each year.
• Use of cheque cashing services: In March 2008, a survey by the Thunder Bay Social Service Administation Board of recipients of Ontario Works benefits found that, of those receiving benefits by cheque, 36 per cent cashed those cheques at AFS businesses, and another 7 per cent used pawnshops or other non-bank locations to cash their cheques.
• Social assistance benefits: A lone parent with one child under the age of 12 can receive a maximum of $1,180 per month ($14,160 annually) of government benefits through the Ontario Works program. This lone parent would pay over $450 per year to cash her government cheques through an AFS business.
Barriers to Use of Mainstream Financial Institutions
• Unbanked Canadians: It is estimated that between three and five per cent – about one million – Canadians do not have an account with a bank or credit union. The percentage is estimated to be much higher among low-income Canadians – perhaps as high as 15 per cent – and among persons living in Northern communities.
• Access to identification: A 2007 survey of homeless adult Torontonians found that 50 per cent of those surveyed did not have a Social Insurance Number, and 29 per cent did not have proof of citizenship (such as birth certificate, citizenship card or record of landing). Identification is required in order to open an account with a bank or credit union.
• Remote communities: In many remote Northern Ontario communities, particularly First Nations reserves, there are no mainstream financial institutions present. Basic non-depository financial services, such as cheque cashing, are provided by the Northern Stores retail outlets.
• Cheque holds: In order to prevent fraud, financial institutions may place holds on funds deposited by cheque to allow time for the cheque to clear. Since April 2007, banks have committed to limiting maximum cheque hold periods to seven days, and are working towards further reducing that period to four days. The ability to access money immediately is the top reason cited by customers who use cheque cashing services.
For More Information
Access to Financial Services: Financial Consumer Agency of Canada www.fcac-acfc.gc.ca
Recipients of Social Assistance: Ministry of Community and Social Services www.mcss.gov.on.ca/mcss/english/pillars/social/
The Payday Loans Act, 2008: Legislative Assembly of Ontario http://www.ontla.on.ca/web/bills/status_of_legislation.do?locale=en#48
Full Report with recommendations: Law Commission of Ontario www.lco-cdo.org