The problems associated with high costs for accessing funds from government cheques are not unique to Ontario. A variety of initiatives have been undertaken in other jurisdictions, including:
Consumer Education: Generally this is aimed at ensuring consumers have the skills and information to make choices about available financial services, but there may also be a broader focus on enhancing financial capability.
Encouraging Use of Mainstream Financial Institutions: Individuals who hold accounts with banks or credit unions can deposit and withdraw funds at minimal cost, as well as receiving a number of other benefits. Steps that encourage usage of mainstream financial services, such as providing access to low-cost identification, will therefore also assist in ensuring access to government benefit funds at low cost.
Alternative Methods of Government Payments: There is an inherent risk of fraud when payments are made by cheque. Fees, cheque holds and identification requirements are methods adopted by financial services providers to manage these risks, but all can create barriers to low-income consumers. Alternative methods of payment, such as direct deposit and benefit cards can reduce risks and potentially ease access to funds.
Indemnification Agreements: Indemnification agreements essentially transfer the risk of cheque-related fraud to government (i.e., the taxpayer), and thereby enable financial service providers to cash government cheques without charging fees.
Regulation: Several jurisdictions have regulated either cheque cashing fees or cheque cashing service providers. Regulation generally takes one of three forms: licensing and monitoring schemes for cheque cashing businesses, prohibitions on fees for cashing government cheques, or regulation of cheque cashing fees.
Recent years have seen considerable activity in Canadian jurisdictions on this issue. A description of initiatives across Canada can be found in Appendix C.
There have also been many reform initiatives in the United States, where the cheque-cashing industry has a long history. These are described below at section IV.F.2
A. Considering Options for Reform
Considering the wide range of reforms that have been adopted in other jurisdictions, there is likely no single best approach to ensuring low-cost access to government benefit payments. Reforms must be responsive to the financial history and culture of the particular jurisdiction where they are implemented, taking into account current regulatory frameworks and any local aspects of the issue. This section of the Report examines the various reform alternatives, weighing the benefits and disadvantages of each approach, and highlighting any issues unique to Ontario.
In considering potential reforms, it should be kept in mind that the issue is, as outlined in the previous section, complex and multi-faceted. Therefore, any single initiative is likely to be inadequate on its own. Most jurisdictions have opted for a package of reforms rather than a single initiative, and it is helpful to consider how various initiatives may interact with each other.
It is a reality that there are costs and risks associated with providing access to government funds – the risk of fraud most importantly, but also costs in time, effort and administration. The current system places much of the burden of these costs and risks on the shoulders of low-income individuals. One of the key questions in assessing any reform is where it allocates those costs and risks, and whether that apportionment is fair and effective.
In considering risks and costs, it must also be remembered that AFS businesses, like mainstream financial service providers, are businesses, and are providing services in the expectation of a reasonable opportunity for profit.
To be successful, reform must be sensitive to the circumstances of those whose lot it seeks to better: in this case, recipients of government benefits. These individuals are generally living on extremely low incomes, far below the Low Income Cut Offs, and their priority is often simply day-to-day survival. Many are lone parents; as well, recipients of Ontario Disability Support Program (ODSP) benefits are, of course, living with the challenges associated with their disabilities. They already face multiple barriers and challenges. Reforms must offer realistic and practical solutions for those living in such circumstances.
A fundamental principle of any reform should be respect for the dignity, privacy and autonomy of social assistance recipients, who make up a significant proportion of those cashing government cheques. This is a group already often heavily stigmatized, marginalized and excluded. As well, it should be recognized that low-income individuals are a diverse group, with an array of needs and resources. The circumstances of a single person with mental health issues living on the streets of an urban environment are different from those of an Aboriginal mother living in a remote community in Northern Ontario, and different again from those of a newcomer family struggling to find their footing in a new country.
Reforms should, to the degree possible, recognize this diversity.
As noted in the previous section, the issue of low-cost access to government benefit payments is closely tied to the larger issue of financial exclusion and access to financial services. The aim of this Report, however, is not to solve the very broad and complex issues associated with financial exclusion, but to develop pragmatic recommendations for addressing the narrower question. For practical purposes, one must assume that, for the near future and for a variety of reasons, there will continue to be some unbanked individuals. Decreasing the number of unbanked Ontarians will reduce the number of individuals paying high fees to cash their government cheques, as well as addressing broader social justice issues. However, reforms should also take into account the needs of those who remain unbanked.
B. Consumer Education and Financial Literacy
1. Consumer Education as a Strategy
Consultees generally agreed that low-income consumers are often unaware of the true costs of cheque cashing fees and of the alternatives available to them.
“There is a significant contingent of consumers who are not aware of their rights with respect to mainstream financial institutions, the comparative costs of using cheque cashing services, and their recourse should they have a concern or complaint with respect to bank services.”
– Thunder Bay Social Service Administration Board
“As many credit unions already offer low cost alternatives, especially when compared to alternative financial services (AFS), the issue does not seem to be the necessity of mandating low costs. Rather it would seem to be educating people to the alternatives available to them and inducing them to take advantage of those alternatives.”
– Central 1 Credit Union
It is likely that some type of consumer awareness or education measures are essential to ensure the success of any initiative to facilitate access to low-cost cashing of government cheques. Consumers must have the information and skills to understand the options available to them and how to access them, evaluate the benefits and disadvantages of various services in light of their own particular circumstances, and be able to advocate for their rights where necessary.
For example, the relatively low level of awareness about the right to cash a federal government cheque without fee at any bank and to make a complaint to the Financial Consumer Agency of Canada (FCAC), and the number of individuals cashing federal government cheques at AFS businesses despite the availability of free services through the banks highlights that even the best initiatives will have limited success unless there is adequate consumer education.
However, consumer education is not enough by itself to solve the issues. It will not remove barriers to use of mainstream financial services, such as lack of identification or cheque hold policies.
“Consumer education alone does not address other systemic issues such as lack of banking services in certain geographic areas and stringent identification requirements for opening a bank account.”
– Ministry of Community and Social Services
Consumer education is therefore best considered as one component of any initiative to ensure low-cost access to government benefits.
2. Providing Effective Consumer Education and Financial Literacy Programs
The provision of financial literacy and consumer education programs to low-income individuals raises some complex issues. Low-income individuals are diverse, and there is a broad spectrum of educational needs. Some low-income individuals have good general financial skills and knowledge and need only access to appropriate information, while others will face barriers related to basic literacy (for example, those who use English as a second language), technological literacy, or lack of understanding of basic financial concepts, such as comparison shopping. Some will have multiple needs.
“The target audience (in this case, low-income and unbanked/underbanked Ontarians) can be elusive and resistant to most standard consumer education methods. That means one must look at alternatives to the standard consumer education models. Our member credit unions suggest that the best consumer education is word of mouth within the low-income community…. That one-on-one education could occur through social workers, government employees and others who work closely with low-income Ontarians.”
– Central 1 Credit Union
The LCO heard that financial literacy and consumer education programs must be:
It may be beneficial to have programs that “train the trainer”. If front-line staff in organizations that serve low-income individuals are themselves not well-informed about rights and resources, not only will opportunities to provide advice and information be missed, but incorrect or inadequate advice may be provided.
As well, the LCO heard that front-line staff of financial institutions may need further information or training related to the rights and entitlements of low-income individuals in order to provide appropriate advice or assistance.
The LCO received many practical suggestions regarding methods of reaching out to low-income individuals with financial information:
· Education should be carried out as early as possible; for example, the high school curriculum could include the fundamentals of financial literacy.
· Cheque cashing businesses could be required to post, in a highly visible manner, information on fees, such as the total cost of cashing cheques for common amounts, such as $500 or $1000.
· Inserts could be sent out with government cheques, informing recipients of their rights and choices when cashing their cheques.
· An education fund could be established to assist programs and organizations that work with low-income communities to increase financial capability.
With respect to the last suggestion, Ontario’s Bill 48, the Payday Loans Act, 2008, requires licensed payday lenders to contribute to a public education fund, the purpose of which is to educate the public regarding rights and responsibilities under this Act, as well as with respect to financial planning in general. The creation of this fund may offer opportunities for education relevant to issues of cheque cashing fees.
The non-profit Social and Enterprise Development Innovations (SEDI) provides several interesting examples of programs aimed at encouraging asset-building and financial capability among low-income individuals. For example, the Learn$ave Program, offered in partnership with the Social Research and Demonstration Corporation and funded by Human Resources Development Canada matches the savings each participant puts aside in an Individual Development Account. SEDI has also piloted the use of Independent Living Accounts to assist individuals and families living in transitional housing facilities to save for first and last months’ rent or other needs, while simultaneously providing life-skills training. Finally, SEDI’s “My Child’s Future” project aims at increasing the number of low and moderate income Canadians who use RESPs to save for their children’s education.
The 2008 Government of Ontario Budget announced a $10 million, four-year investment in a pilot program to help low-income Ontarians to build eq