The major banks all now offer low-cost basic banking services. A basic bank account, offering standard withdrawal, transfer and bill payment services, costs less than $4.00 per month.[10] By comparison, the costs of using cheque cashing services are quite high. Why then do consumers use these services?

A. Bank Cheque Hold Policies

Users of cheque cashing services give a variety of reasons for using these businesses, despite the lower costs of using a bank. Perhaps most frequently, users of cheque cashing services emphasize the “immediacy” of the service provided. Banks may place holds of several days on funds deposited with them, in order to to make sure that the person or company who wrote the cheque has enough funds to cover the cheque; to make sure that the person or company who wrote the cheque has not put a “stop payment order” on the cheque; and to verify the cheque details with the person or company who wrote the cheque, to make sure that it has not been altered. One survey found that 27 percent of young and low-income respondents had had holds placed on their cheques.[11] Low-income individuals, who are often operating with very tight cash-flow requirements, often cannot afford such delays in accessing their funds.

It should be noted that the banks have made efforts to reduce the length of holds placed on cheques. The members of the Canadian Bankers’ Association entered into an agreement to reduce the maximum cheque hold period from ten business days to seven business days by April 2007, and to work towards further reducing it to four business days. As well, under the Cheque Holding Policy Disclosure (Banks) Regulation, banks are required to provide customers with a written statement outlining their cheque holding policy.[12]

B. The Unbanked and Underbanked

Concerns regarding cheque cashing fees must be considered in the broader context of access to basic banking services. Research conducted for the Task Force on the Future of Canadian Financial Services Sector found that a strong majority of Canadians viewed access to basic banking services as essential. Access to cheque cashing services was viewed as essential or important by 95 per cent of Canadians, and access to a basic chequeing account was viewed as essential or important by 85 per cent of Canadians.[13] While most Canadians can assume access to the basic banking services they need, there is a small but significant portion of Canadians who are “unbanked” or “underbanked”, meaning that they either have no relationship with a mainstream financial institution, or only a very tenuous one. It is difficult to reliably estimate the number of Canadians who are unbanked, since these persons are also less likely to have a fixed address, and so are hard to reach by traditional research methods. However, the most commonly cited figure is that between three and five percent of Canadian adults are unbanked – that is, about one million adult Canadians.[14]

Low-income Canadians are disproportionately likely to be unbanked. Some have estimated that the percentage of low-income individuals who are unbanked may be as high as 15 per cent.[15] A 1995 Environics study found that eight per cent of individuals with incomes below $25,000 did not have access to banking services.[16] In 1998, the government of Saskatchewan estimated that between 55 and 60 per cent of its social assistance caseload was unbanked.[17]

Surveys have indicated that some consumers use cheque cashing services because they are unbanked, and therefore have no alternative. A 1996 survey of Toronto street youth found that, while most used cheque cashing services because of the convenient locations and hours and the ability to access the cash without a hold, 29 per cent indicated that they had no other option, because they had no bank account.[18] In the Ipsos-Reid Survey referenced earlier, seven per cent of those using a cheque cashing service indicated that they used cheque cashing services because they did not have a bank account.[19]

Why do these Canadians lack access to basic financial services? A number of potential barriers have been identified. For example, appropriate identification is required to open a bank account, but low-income persons may lack such identification, and thus encounter a significant barrier in opening a bank account.[20] Some types of identification, such as passports and birth certificates, involve significant administration fees, or complex paperwork. Persons who are homeless or transient may lose their identification documents. Some have pointed to Ontario laws prohibiting anyone from requesting health cards as identification as an unintended barrier to bank access.[21] A number of observers, including the Task Force on the Future of Canadian Financial Institutions, have recommended that governments take steps to ensure that all Canadians have access to low-cost identification, in order to improve access to financial services.

Considerable efforts have been made to improve access to basic banking services. All of the major banks now offer low-fee basic bank accounts. A 1997 agreement between the federal government and the major banks set a number of important policies and protocols for improving access, some of which have been formalized in the Access to Basic Banking Services Regulations.[22] For example, the Regulations clarify and simplify the identification requirements for opening a bank account. If the bank branch refuses to open an account, written reasons must be provided to the individual, along with information about how a complaint may be filed with the FCAC. As well, the bank must display and make available to the public at all of its branches and points of service a written statement disclosing the requirements for opening a bank account and the procedure for initiating a complaint.

The FCAC is tasked with the responsibility of monitoring the banks’ compliance with these requirements, and regularly issues reports. While progress is being made, there are still problems “on the ground” in serving customers that are not likely to be profitable to the bank. [23]

C. Location

The convenience of the locations, the hours and the service are other frequently cited reasons for use of cheque cashing services. In the FCAC Ipsos-Reid survey, five per cent of those using a cheque cashing/payday loan service cited the convenience of the location, 18 per cent cited the convenient hours, and 10 per cent cited general convenience.

Persons in low-income or remote communities may find that there is no conveniently located mainstream financial institution. Low-income Canadians are generally less mobile as they are less likely to have a car; they also tend to have less access to information technologies such as computer and internet access. There is some evidence that the closure of bank branches in recent years has had a disproportionate impact on low-income urban neighbourhoods, so that low-income people must travel greater distances to maintain their bank accounts.[24] Concerns have also been raised that these closures have had a significant impact on some rural and remote communities. One study noted that between 1991 and 1996, 122 communities lost their only bank branches.[25]

D. Service

Users of cheque cashing businesses also emphasize the friendly, helpful and welcoming service that they receive. Customer surveys for cheque cashing/payday loans businesses report high levels of satisfaction with the service received.[26]

On the other hand, there have been reports of negative and unwelcoming treatment of low-income persons by mainstream financial institutions.[27] For example, one study described how one bank branch would create a separate well-marked queue outside the bank for social assistance recipients on cheque cashing day.[28] These cultural and attitudinal barriers may be exacerbated by the banking industry trend to focus resources on those customers that are likely to be most profitable.[29]

Concerns about the quality of service offered to low-income customers were acknowledged in the February 14, 1997 Agreement Between the Federal Government and the Major Banks on Access, in which the banks committed to remind staff of the need for all customers to be treated with fairness and respect, and to provide more information and training to low-income groups to help them become more knowledgeable about and comfortable using banking services.

E. Consumer Awareness

There is also some evidence that customers of cheque cashing businesses may not be aware of the costs that they are incurring by doing so. In the survey conducted for the FCAC in 2006, 31 per cent of those using cheque cashing businesses had cashed a federal government cheque through those outlets, despite the fact that federal cheques may be cashed without fee at any bank, with proper identification. Forty per cent of those using these cheque cashing services did not believe that the service fees that they were paying were any higher than those offered by mainstream financial institutions.[30]

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