Protecting Yourself from Check-Cashing Traps

Check-cashing businesses "cash" your checks and provide other financial services. They tend to be located in lower-income neighborhoods and serve people who do not have any kind of traditional credit, savings, or checking accounts. This includes the working poor, recent immigrants, and people living on fixed incomes or public assistance. These businesses charge their customers extremely high fees to perform these services.

If your financial choices are currently limited, try one of these alternatives to check-cashing companies:

• Cash your check at the bank from which it was drawn, if possible.
• Comparison-shop; about one-third of the check-cashing industry (about 6,000 businesses) is owned by six companies.
• Start managing your finances so that you can save the money needed to open a checking and/or savings account. Many banks offer no minimum or low minimum bank accounts so you won't have to save much to open an account.

High-Cost Cash Advances

Check-cashing businesses also offer their own types of loans: small, short-term loans that carry extremely high interest rates, also called Payday Loans. A six-week $200 loan from one of these companies, for example, can cost $165 in interest and fees. Bottom line: You borrow $200. In six weeks, you owe $365 – that is almost 185% of the original amount borrowed!