Office of Consumer Affairs Ends Check Casher Partnerships Targeting Social Security Recipients
Division of Banks Actions Lead to Bank Ending Relationships Nationwide; Local Banks and Credit Unions to Fill Void for Consumers
Under these arrangements, check cashers would market the establishment of direct deposit services at their locations and create a limited-purpose account with an out-of-state bank to allow for the direct deposit of customers' Social Security or other government benefit checks. Approximately 2,700 Massachusetts residents had established these accounts, even though Massachusetts banks and credit unions are required by law to cash Social Security and pension checks at no cost to the consumer.
The out-of-state banks routinely charged between $4 and $4.95 each time a Social Security benefit check was electronically deposited into one of these accounts. These so-called limited-purpose accounts did not provide an access device for customers. Accordingly, consumers were dependent upon the participating check cashers to access their funds once deposited in the out-of-state banks. Check cashers were provided with the ability to write checks on the accounts by the out-of-state banks and typically charged consumers an additional fee ranging from 2 percent to 2.8 percent of the face value of any check created to access funds.
"These partnerships between check cashers and out-of-state banks and the resulting fees are outrageous. The consumer thinks they are getting access to their Social Security benefits though a direct deposit at a bank. Instead, they are forced to pay high fees to access their own money," said Barbara Anthony, the Undersecretary of the Office of Consumer Affairs and Business Regulation. "Consumers will be far better served to open a full-service account at a local bank or credit union."
Commissioner of Banks Steven L. Antonakes said that the partnerships between the out-of-state banks and check cashers were discovered during routine examinations of the check cashers. Check cashers entering into formal consent orders with the Division include Boston Check Cashers and its 20 Boston area locations; Cassie H. Farmer d/b/a Family Financial Center, in Framingham; JMT Check Cashing, Inc., d/b/a United Check Cashing, in West Springfield; Northeast Check Cashing, Inc., d/b/a The Money Stop, in Worcester; Parras, Inc., d/b/a Ace Cash Express, in Worcester; and Speedy Check, Inc., in Lowell. The out-of-state banks partnering with these licensees were Republic Bank and Trust Company of Louisville, Kentucky, and Bank of Agriculture and Commerce of Stockton, California.
The action by the Division will have nationwide ramifications. Subsequent to the release of the Division's orders, the bank involved in all six Massachusetts check cashers - Republic Bank and Trust Company - announced to check cashers around the country that it was exiting the business. The California bank had previously announced that it was ending all partnerships with check cashers nationally.
"What makes these practices even more frustrating is that under existing Massachusetts law, any bank or credit union doing business in the Commonwealth must cash Social Security checks at no cost for all Massachusetts residents," Commissioner Antonakes said.
Massachusetts law requires all banks and credit unions to cash Social Security and other pension benefit checks at no charge, even if the consumer does not have an account. Dan Forte, President of the Massachusetts Bankers Association, urged consumers to establish a secure and insured account at a local bank.
"Consumers can avoid high check casher fees by opening a low-cost bank account or a free full-service account at most local banks," said Forte. "Massachusetts banks have been serving customers on fixed incomes for years."
Dan Egan, President of the Massachusetts Credit Union League also advised Social Security recipients to save money by establishing a direct deposit account locally.
"Massachusetts credit unions were founded to serve people of limited means," Egan said. "By doing business with a credit union in Massachusetts, consumers can access their accounts without having to pay a fee."
Under the terms of the consent orders, all six check cashers will be required to terminate their relationships with the out-of-state banks and end all advertising that implies that they offer banking accounts. In addition, they must provide a letter to each customer that has established a limited-purpose bank account notifying the customer that the check casher will no longer be able to provide direct deposit services. The check cashers must also notify customers that they can either open up a direct deposit relationship at another bank or credit union, set up a DirectExpress® debit card through the Social Security Administration, or revert to receiving paper checks. They will also advise customers that banks and credit unions in Massachusetts must cash Social Security and other pension checks for free.
Consumers with direct deposit relationships with one of these check cashers who have questions, or other consumers receiving Social Security or other pension checks who would like information on alternatives to check cashers, should call the Division's Consumer Hotline at (800) 495-BANK (2265).