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Check Cashing and Savings Programs for Low-Income Households: An Action Plan for Credit Unions

This report shows how credit unions and their service organizations can provide low-fee transaction service and special savings programs to the un/underbanked.

  • John P. Caskey Swarthmore College
  • Susan J. Brayman Denver, Colorado

Executive Summary

This report shows how credit unions and their service organizations (CUSO’s) can provide low-fee transaction service and special savings programs to modest- and moderate-income households that are currently using check-cashing outlets and other fringe banking businesses. Using the business strategies detailed in this report, credit unions can generate income from providing these services. Credit unions can also make it possible for households now using fringe banking outlets to obtain vital financial services at prices lower than they currently pay. Most important, credit unions can help many of these households make the transition to traditional low-cost credit union deposit accounts and loans.

What is this research about?

Millions of low- and moderate-income American households do not obtain payment and credit services from mainstream financial institutions. These households are commonly referred to as the“underserved,” reflecting their relative absence from traditional deposit-taking institutions. They are more likely than the general population to rent their homes, and to be headed by a racial or ethnic minority group member, and someone with a modest education. In most cases, they have almost no month-to-month financial savings and, frequently have impaired credit histories. Many of these households obtain payment and credit services from the alternative financial sector (AFS) — including check-cashing outlets, payday lenders, small loan companies, pawnshops, rent-to-own shops, and car title lenders.

In this report, we develop business plans and budgets for credit unions to offer check cashing and bill paying services as part of a branch or shared branch that also provides traditional credit union products. Adding check cashing and bill paying services to traditional services would increase the profitability of these branches rather than reducing it. By providing these services credit unions can build relationships with the underserved that they can use to help them to take the steps necessary to access low-cost financial services. The combination of traditional credit union products plus check-cashing and bill-paying services can make a branch or shared branch financially sound in neighborhoods where a traditional branch or shared branch might not be viable.

What are the credit union implications?

One of the fundamental philosophical values of credit unions is to deliver high-quality financial services to people of modest means. If credit unions are to maintain their unique character they must hold fast to this distinguishing philosophical value. It is also politically wise for credit unions to make this effort. The banking industry periodically attacks credit unions for their tax-exempt status and for their exemption from the Community Reinvestment Act. By demonstrating that they serve the underserved, credit unions will bolster their defenses against such attacks. 

This report is sponsored by the Center for Credit Union Research, School of Business, University of Wisconsin-Madison. Funding was provided by the National Credit Union Foundation under a grant from the Ford Foundation.