There are a number of ways in which a person can access government funds that have been transferred by cheque: individuals who hold accounts with banks or credit unions may deposit the cheque in their account and withdraw funds (subject to any cheque hold policies); the individual may pay a fee and cash the cheque at an Alternative Financial Services (AFS) business; or in some cases, the cheque may be cashed through a small business such as a convenience store. The costs of using these different services vary considerably: cashing one’s cheque through an AFS outlet is considerably more expensive than accessing funds through a bank account. Most Ontarians access funds through their bank accounts; however, a small but significant number of Ontarians pay the higher fees required to cash their cheques at an AFS business or cash them through informal means.

Over the years, concerns have been repeatedly voiced by organizations serving or advocating for low-income individuals about the impact of relatively expensive cheque cashing services on these Ontarians, particularly those in receipt of government assistance. Several Canadian jurisdictions have taken legislative initiatives to ensure that recipients of government cheques can access these funds at low or no cost (see Appendix C).[9]

The issue of fees for cashing government cheques raises the following questions:

  • Who uses cheque cashing services?
  • How widespread is the use of cheque cashing services among recipients of government benefits and what is the impact of those fees on these individuals?
  • Why do consumers use cheque cashing services when funds can also be accessed through mainstream financial institutions at low or no cost?
  • Are the cheque cashing rates charged by AFS businesses excessive in light of the risks and costs associated with providing the service?
  • What are the costs and risks of cashing government cheques?

    The answers to these questions are important in determining whether reform is necessary, and if so, what reforms would be both practical and effective.

    The situation and the issues are complex, and in some cases, only limited information is available. During the LCO’s public consultations, it became clear that stakeholders have different perceptions, not so much as to whether the payment of fees for cashing government cheques is an issue of concern, as it was generally agreed that this is a pressing issue, but of the source of the problem. The core issue was variously characterized as the profound poverty and lack of social supports for certain segments of Ontario society; barriers to mainstream financial services; predatory practices by AFS businesses; or lack of financial awareness and poor choices by some individuals.

    The following section attempts to address these issues by outlining available information regarding the users of cheque cashing services, barriers to the use of mainstream financial services and the key features of the cheque cashing industry.

    A. Cost of Cashing Government Cheques in Ontario

    The cost of cashing a government cheque in Ontario may vary considerably depending on the source of the cheque cashed, the institution cashing the cheque and local arrangements. Cashing a government cheque may involve low or even no charges or it may involve considerable expense.

    1. Banks and Credit Unions/

    Banks and credit unions will cash cheques for account holders, subject to their cheque hold policies. The major banks all now offer basic banking accounts for under $4.00 per month. Services offered with these accounts include the deposit and withdrawal of cheques (for details, see Appendix F).[10] Account holders may therefore access cheque funds for a very minimal charge. Some banks also offer “pay as you go” fee structures for those with branch accounts: for example, Royal Bank or Bank of Montreal account holders who choose a pay-as-you-go fee option will pay $.75 to cash a cheque of any amount.

    Federal government cheques of up to $1,500.00 may be cashed without fee at any bank (regardless of whether the person holding the cheque is an account holder) upon production of a piece of identification that has both a photo and a signature, or of two pieces of other acceptable identification.[11] Federal law specifically exempts banks from cashing such cheques where there is evidence of illegal or fraudulent activity with respect to the cheque.[12]

    As well, a number of Ontario municipalities have entered into informal agreements with local banks or credit unions to facilitate the cashing of social assistance benefit cheques without charge.[13] Under these agreements, the social services delivery agent agrees to indemnify the financial institution in cases of fraud, and in return the bank or credit union agrees to cash Ontario Works program cheques without charge, whether or not the cheque holder is an account holder, upon the production of appropriate verification. The verification required differs depending on the agreement; some require the same type of identification as is used for cashing federal government cheques, while others permit cheques to be cashed based on the presentation of a letter produced by the social service provider.

    2. AFS Businesses

    Government cheques may also be cashed at AFS businesses. Cheque cashing businesses charge a range of fees for this service. Usually fees include both a flat “item” or “transaction” charge and a charge calculated as a percentage of the value of the cheque being cashed. Generally, there is no difference in the fee charged for cashing government, payroll or personal cheques. For example, as of July 2008, Money Mart and Cash Money each charged an item fee of $2.99 plus a percentage fee of 2.99 of the face value of the cheque, while Cash House charged $1.49 plus 2.49%. The fee for cashing a $500 cheque would therefore be $13.94 at Cash House and $17.94 at Money Mart or Cash Money. A lone mother of two young children cashing her monthly social assistance and Ontario Child Benefit cheques for $1,510 at Money Mart or Cash Money would pay $48.14 per month to cash her cheques, for a total annual charge of $577.67 per year.

    3. Informal Cheque Cashing

    Finally, government cheques may be cashed as an ancillary service by retailers such as bars or convenience stores, or occasionally by landlords. Data on such services are limited. However, based on information provided to the LCO by stakeholders, the fees for such informal cheque cashing services may vary greatly, from minimal to exorbitant. In some cases, the cheque casher will require that the funds from the cheque be spent in-store. This practice appears to be relatively rare in urban centres in Southern Ontario, but may be quite common in remote communities, particularly in Northern Ontario.

    B. Impact of Cheque Cashing Fees: Users of Cheque Cashing Services and Recipients of Government Benefits

    Who uses cheque cashing services? In attempting to assess the impact of fees for cashing government cheques, it is helpful to consider available information about three groups: users of AFS businesses in general, users of cheque cashing services and those who are cashing government cheques in particular. There has been significant research on users of payday loan services, some research on persons who use cheque cashing services, and very little research on persons cashing government cheques.

    These groups overlap: payday loan users also frequently use the cheque cashing services provided by AFS businesses, for example. However, they are certainly not identical. By virtue of having employment income, payday loan customers and individuals cashing payroll cheques differ in important respects from persons who rely on government cheques for subsistence. The Canadian Payday Loan Association (CPLA) prohibits members from providing payday loans on the basis of social assistance payments; however, it appears that some organizations that are not members of the CPLA do provide such services to social assistance recipients.[14]

    Further, it is important to remember that the provincial Government issues a variety of cheques and not all persons receiving government cheques are low-income, while some persons cashing payroll cheques may very well be.

    1. Users of AFS Services

    A number of studies and surveys have examined the characteristics of customers of AFS businesses, usually with a focus on payday loan services.

    Use of AFS outlets is relatively rare among Canadians. A 2005 survey conducted by Ipsos-Reid for the Financial Consumer Agency of Canada (FCAC) found that only seven per cent of Canadians have used an AFS business.

    Studies agree that users of AFS businesses overall are more likely to be young and low-income. The Ipsos-Reid survey found that AFS users were more likely to be young, low-income and urban (the latter likely reflecting the current distribution of AFS locations).[15] A Statistics Canada study of Canadian payday lending patterns based on the 2005 Survey of Financial Security found that young families (families with the major income recipient between the ages 15 and 24) were three times more likely to have used payday loans than families whose major income recipient was aged 35 to 44. Use of payday loans was also found to be associated with lower levels of education. Low-income families were twice as likely to have used payday loans. Particularly vulnerable were families with bank balances of $500 or less, as well as families that did not have credit cards. Almost half of those using payday loans reported that they had no one to turn to for financial assistance in the face of financial difficulties.[16]

    Users of AFS services are also disproportionately likely to be found in Northern regions, at almost double the rate of Canadians in other regions (13 per cent, compared to seven per cent).[17]

    According to the Ipsos-Reid survey, the most frequently used alternative financial service was cheque cashing (57 per cent of users), with 25 per cent of AFS customers using payday loans services. Surprisingly, one-quarter of AFS customers reported using these businesses to cash a federal government cheque – which may be cashed without charge at any bank upon presentation of appropriate identification. Supporting these results, a 2006 survey found that fully 31 per cent of all those using cheque cashing outlets over the previous year did so in order to cash a federal government cheque. Neither survey asked users about cashing provincial or municipal government cheques; presumably this would also be a significant proportion of the cheques cashed. The 2006 survey went on to note that 40 per cent of those using non-bank services to cash cheques did not know that the fees were higher than those offered by mainstream financial institutions.[18]

    The Ipsos-Reid survey found that AFS consumers cashing federal government cheques were substantially more likely to be young and low-income than other AFS customers (who already are more likely than the average to be young and low-income).

    Interestingly, evidence given in a hearing before Manitoba’s Public Utilities Board in 2007 indicates that a very substantial proportion of persons cashing cheques through Money Mart have no account with a bank or credit union – perhaps as many as one-third of these customers.[19]

    2. Impact on Recipients of Government Cheques

    Government cheques may be issued for a variety of purposes, including employment and payment for business services. Wages to Ontario public servants are for the most part paid through direct deposit and therefore make up a relatively small proportion of cheques issued. For the fiscal year 2007-2008, the Ontario government issued 693,861 cheques for direct operating expenses.[20]

    There are also a number of benefit programs for which cheques may be issued. In the fiscal year 2007–2008, the Ontario government issued 1,732,426 cheques related to transfer payments. The top programs for which cheques were issued were as follows:

    1. Ontario Child Care Supplement (OCCS): This program provides low-income Ontario families who have children under the age of seven and who meet other eligibility criteria with a monthly supplement to assist with child care costs. The program is integrated with the federal Canada Child Tax Benefit. The OCCS is currently in transition with the introduction in July 2008 of the Ontario Child Benefit (OCB),[21] and will gradually be phased out.

    2. Ontario Disability Support Program: This program is fully described in the following section. Note that cheques for the Ontario Works social assistance program are not included here among cheques issued by the Ontario Government, as those cheques are issued by service delivery agents.

    3. Vehicle Plate Refunds: Drivers who move out of Ontario and have more than three months remaining on their license plate validation may apply for a refund.

    4. Guaranteed Annual Income Supplement (GAINS): This program provides a guaranteed minimum income to Ontario seniors, in addition to the federal Old Age Security pension and Guaranteed Income Supplement, through monthly payments of up to $83.00 per month.

    5. Northern Ontario Travel Grants: These travel grants are funded by the Ministry of Health and Long Term Care to help defray the transportation costs for eligible residents of Northern Ontario who must travel long distances within Ontario or Manitoba to receive medically necessary insured specialty services that are not available locally.


    6. Integrated Tax Administration System:
    The Ministry of Revenue administers Ontario