Noncustomer check cashing charges
By Laura Bruce • Bankrate.com

Each payday, Tom, Denise, Sue and Roland zip across the street on their lunch break to Second Federal Trusty Bank. They don't have accounts there, but their company does. And for years the bank has cashed their paychecks, no questions asked.

This time is different.

Teller: "Do you have an account with us?"
Tom: "No."
Teller: "There's a $3 fee to cash a check."
Tom: "Why?"
Teller: "Because we have to process that check, and you're making customers who have an account with us wait longer in line. Open an account with us, and you don't have to pay the fee."

More and more banks are opting in when it comes to charging "noncustomers" for cashing checks, even when it's drawn on an account at that bank.

Bank of America, the country's biggest bank, is phasing-in noncustomer check cashing charges starting in Arizona and Nevada. The bank will charge noncustomers $3 to cash a check drawn on a Bank of America business account. Noncustomers will still be able to cash Aunt Zelda's birthday check for free.

Mark Ferrulo of the Florida branch of the Public Interest Research Group says the fees are unconscionable.

"It's wrong to charge someone to cash a check written on your bank. There's no threat of bouncing or insufficient funds -- they can check instantly to see if the money is there. Handling costs are at a minimum because the check doesn't have to leave the facility."

Mary Beth Navarro of Charlotte, N.C.-based First Union says there are other considerations.

"Check-cashing exposes us to fraud. We can see there's money in the account, but we don't know the person we're giving the money to. We could ask for two forms of ID, but that takes time and isn't efficient."

First Union, which only charges the fee in Florida, gives noncustomers the option of avoiding the fee by opening an account or getting a free, check-cashing ID card.

When you get to the teller, you swipe your ID card, enter a PIN, and the teller cashes your check.

First Union swipes an average of 80,000 cards a week in Florida. That's a lot of check cashing for people who don't have an account with the bank.

But that doesn't have PIRG's Ferrulo shedding any tears for banks.

"The company that has the account to begin with is paying service fees and providing money for investment to that bank. It's part of the banking industry's three-fold strategy that started in the early '90s -- raise existing fees, make it harder to avoid existing fees, invent new fees."

Fifth Third Bank, headquartered in Cincinnati, charges a whopping $8 for noncustomer check cashing.

No account, no freebies
The bank doesn't have any toasters to give away, but it tries to lure noncustomers into opening accounts by giving them free coolers, duffle bags and soccer fan chairs.

"We think the message is, 'Bank with us and there's no fee on ATMs, check cashing or checking with our totally free checking. Or, if you don't choose to bank with us but wish to continue to avail yourself of our convenience and our service, a fee will be assessed," says spokeswoman Roberta Jennings.

Is an $8 fee justified by transaction costs or is it punitive? After all, First Union charges just $1.

Bankrate financial analyst Greg McBride says it's a little of both.

"It's the price of not doing business with a particular institution. Just as nonaccount holders bear the costs associated with an ATM network, banks are now assessing non-account holders for in-branch check cashing."

PIRG's Ferrulo says $8 is outrageous.

"Even $3 to $5 is absurd. There's a difference between profits and profiteering. It's practices like this by the banking industry that make way for legalized loan-sharking in the form of check cashing places, title loans and the like. This hurts low-paid employees the most -- 12 million of them can't afford bank accounts."

Lowest paid are hardest hit
Low-paid employees would be hit hard by these fees, but every bank we talked with offers either a free ID card or free checking -- a way to become a customer and avoid the fee.

Detroit-based Comerica implemented its $3.50 noncustomer check-cashing fee last April. It's assessed on business and personal checks over $100.

"Nearly half of the checks presented for cashing come from noncustomers," says spokeswoman Aimee Sass.

"We decided to pass the cost of processing those transactions to the users rather than our customers."

Comerica offers free checking to anyone who meets one of three qualifications -- is a homeowner, direct deposits one paycheck per month or maintains a $500 minimum balance.

Bank of America also lets folks avoid the fee by opening a no-service-charge checking account with direct deposit of paycheck or government check.

There's no question fees irk customers, and banks seem to find new ones in every nook and cranny. But banks are in business to make money, and fees are a way to increase revenue.

"One thing is evident looking at the different bank fees and rates. They maximize revenue and minimize risk, and that's what the institutions are geared toward, that's what they're in business for, like it or not," says Bankrate's McBride.

Ferrulo would like to see companies open accounts with banks that don't charge check-cashing fees.

"Look for a bank that's not going to pickpocket your employees."

That said, see if your company offers direct deposit -- your check will automatically be sent to your account at your bank.

If you don't have a bank account, see if the bank your company does business with offers free checking with direct deposit. If you can open a no-fee, no-minimum checking account just by signing up for direct deposit, why not do it?

-- Posted: June 12, 2001