A. Consumer Education
Research conducted by the FCAC indicates that 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 banking services. This indicates the importance of communication with consumers, particularly the most vulnerable consumers, about their rights and choices. Ontario has recently implemented rules regarding information to be provided to payday loan customers, in order to ensure that consumers have the necessary information to make choices. Some non-profit organizations have undertaken initiatives to increase financial capability among low-income individuals. Similar initiatives could be useful in addressing concerns related to cheque cashing fees. For example, cheque cashing businesses could be required to provide information to persons cashing federal cheques regarding the no-fee services provided by the banks. However, consumer education will not by itself remove barriers to access to mainstream financial institutions, including negative attitudes towards low-income persons, cheque holds, identification requirements, and lack of convenient locations.
B. Direct Deposit Programs
One way of avoiding the need for cheque cashing is by use of direct deposit for government payments. Several jurisdictions have been moving towards increased use of direct deposit for social benefit payments, whether through mandatory policies, or voluntary programs. There has also been some experimentation with use of debit cards for social benefit payments. Notably, the province of Alberta has implemented a mandatory direct deposit scheme.
Direct deposit programs have many benefits. They reduce the administrative costs and risk of fraud for social programs; reduce burdens and risks for financial institutions; and increase convenience for recipients. The Task Force on the Future of Canadian Financial Institutions recommended that governments should increase the use of direct deposits for all government programs that offer regular benefits.
However, direct deposit programs are not appropriate for emergency or short-term payments. Further, in order to be effective, direct deposit programs must be paired with efforts to remove barriers to banking for payment recipients. For example, the province of Alberta, when moving to mandatory direct deposit, actively addressed the issue of access to affordable identification for payment recipients.
C. Indemnity Agreements
Under an indemnity agreement, financial institutions that meet certain standards with respect to identification when cashing a cheque can be assured of payments from the agency issuing the cheque. The federal government and the provinces of British Columbia, Manitoba and New Brunswick have entered into formal or informal indemnity agreements with the major banks that allow non-bank customers to cash cheques with the required identification. The federal government’s indemnity agreement extends only to cheques for $1,500 or less.
The Task Force on the Future of the Canadian Financial Services Sector recommended that governments that have not yet entered into indemnity agreements should do so and the Canadian Bankers Association has indicated its support for these types of initiative.
D. Legislative Regulation of Cheque Cashing Fees
Four Canadian jurisdictions have passed legislation regulating fees for cashing government cheques. Two jurisdictions have regulated fees, while two others have prohibited fees.
The provinces of Manitoba and British Columbia have recently passed laws that set maximum rates for cashing government cheques. The Manitoba legislation enables the Public Utilities Board to hold public hearings to set rates for cashing cheques issued by the federal, provincial or local governments, or by a government agency. The Public Utilities Board issued an order in May 2007 setting maximum cheque cashing rates at an item fee or $3.00 and 2 per cent of the face value of the cheque.
In British Columbia, Bill 27, the Business Practices and Consumer Protection (Payday Loans) Amendment Act, 2007 received Third Reading on October 23, 2007, but has not yet come into force. Part 6.2 of that Act prohibits the charging of fees for cashing cheques issued by the federal, provincial, or local government, or government bodies, except as permitted by regulation. Public consultations on those regulations recently closed and the results are expected to be issued soon.
In conjunction with its indemnity agreement with the banks, the federal government prohibits banks from charging a fee to non-customers for cashing a federal government cheque for an amount less than $1,500. The individual presenting the cheque must provide the requisite identification. The bank need not cash the cheque if there is evidence that the cheque has been altered or is counterfeit or if there are reasonable grounds to believe that there has been illegal or fraudulent activity in relation to the cheque. Where a bank refuses to cash a cheque, a written notice must be provided, setting out the reasons for the refusal and indicating that the individual may complain to the FCAC. The FCAC regularly conducts “mystery shopping” exercises to gather information about the banks’ compliance with these requirements. The most recent results revealed a 91 per cent success rate in cashing federal government cheques.
The Quebec government has longstanding legislation on this issue prohibiting any charge for exchanging or cashing a cheque issued by the federal, provincial, or any municipal government. Interestingly, Quebec also has a lower percentage of the population that is “unbanked” than the national average, as well as lower use of cheque cashing outlets. It has been suggested that this unique landscape is linked to the operation of the Caisses Populaires.
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