Review: How Much Does it Cost to Cash a Check?

Adam Rust

This post compares state laws governing the cost of cashing a check. We factor for type of check, be it payroll, government-issued, or personal.

We believe that our accounts can help people reduce their cost of making transactions. We offer accounts with monthly maintenance fees priced well below the fees charged by the prepaid debit cards sold in retail stores. Some of our cards have no monthly fees, no per-swipe fees, and no fees to access one of the card’s surcharge-free ATMs.

However, savings on those benefits, while very impactful for a person on a tight budget, are only a fraction of the overall opportunity. We will never offer a card with an overdraft fee. Consumers who use traditional checking accounts incur an average of four overdraft fees per year.   A minority pay more than $300 in overdraft fees annually. As a result, WiseWage helps the “banked” consumer. However, unbanked individuals can also benefit. For those who do not have an account already, signing up for a WiseWage card ends the need of the consumer to use a check cashing service.

As the name implies, check cashing stores earn money by charging consumers to cash checks. Sometimes they have other lines of business, of course, and frequently those other services include high-cost consumer finance installment or payday loans. Those products are expensive, but so is cashing a check. In some states, it would not be out-of-the-ordinary for a minimum-wage worker to spend five hundred dollars per year to cash paychecks.

The living wage movement should pay attention to check cashing laws, as they are a shadow tax on unbanked workers.

Personal checks usually cost more than government-issued checks or payroll checks, as they have a higher likelihood of bouncing.

States set ceilings on how much a store can charge, with accommodation given according to the type of check. Sometimes the top rate is configured as a percentage of the face amount of the check. In other cases, a state may establish a top-level fee. For example, in the state of Rhode Island, a company cannot charge more than seven percent of the face value of a personal check or $5.

States with the highest rates:

Florida: Personal checks – 10 percent or $5, whichever is greater. Payroll check – 5 percent or $5, whichever is greater. Money orders – 10 percent or $5, whichever is greater.

States with a similar schedule: Maine (6 percent on payroll checks without proper documentation), Indiana, Hawaii, Mississippi, Rhode Island, Tennessee, Vermont, and Georgia.

California: Personal checks – 12 percent, but 3 percent for payroll checks cashed with valid identification.

States with the lowest rates:

West Virginia – 1 percent of the face value or $1, whichever is higher. The rate is the same for government checks, payroll checks, money orders, and personal checks.

New Jersey: 2.21 percent or $1, whichever is greater, for payroll and personal checks. For state-issued public assistance disbursements, 1 percent or $0.90, whichever is higher. For social security checks, the maximum is 1.5 percent or $0.90, whichever is greater.

Connecticut: 2 percent or $1, whichever is greater, for personal and payroll checks. The rate is only 1 percent for state-issued checks drawn to distribute public assistance.

States without caps: Massachusetts, Minnesota, Kentucky, Wisconsin, Virginia, Utah, and Arizona.

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In seventeen states, laws allow check cashers to charge 10 percent or more to cash a personal check.

Many states remove this restriction for businesses where check cashing is only a minor part of their overall operation. Grocery stores, which often transact the majority of such exchanges in a community, are exempt. However, some states put conditions on pricing even when they let a retailer skirt the rule that applies to a mono-line check cashing store. For example, California only gives an exemption from a rate cap rule if the per-item fee for a non-covered retailer is less than $2.

Illinois had previously been one of the states with the lowest rates in the country. In 2013, the state set a maximum cap of 1.4 percent of the face value for cashing a check – regardless of whether or not it was a personal check, a government-issued check, or a payroll check. However, in June, the Illinois Department of Financial and Professional Regulation approved higher fees. Now, cashing a check will cost between 2.5 percent and 3 percent of the face value of the draft, depending on the size of the check. In response, community advocates have pushed back with well-organized campaigns against the increases. 

Source: Financial Service Centers of America, 2013. 

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