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The Implementation of Check-Cashing Services: A Growth Opportunity for Credit Unions

This report suggests specific ways in which credit unions can provide services currently being offered by the alternative financial sector (AFS).

Executive Summary

Millions of low- and moderate-income Americans do not obtain payment services from mainstream financial institutions. These individuals are more likely to rent their homes, to be racial or ethnic minorities, young, limited to no assets and to possess limited educational attainment. In most cases, they have almost no month-to-month financial savings, and frequently have impaired credit histories.

Credit unions are in an excellent position to reach out to these people, and fulfill their traditional mission of providing financial services to people of modest means. In this research, Filene suggests specific ways in which credit unions can provide services currently being offered by the alternative financial sector (AFS) – check-cashing outlets, payday lenders, small loan companies, pawnshops, rent-to-own shops, and car title lenders.

What is the research about?

To provide empirical evidence of the benefits and challenges of transaction services, the Center for Credit Union Innovation and the Filene Research Institute undertook a pilot project to determine whether these services are a practical complement to credit union product offerings. The pilot also demonstrated that an idea can be taken from a research study and implemented in the credit union marketplace.

The 2003 check-cashing pilot project worked closely with leagues and associations to identify credit unions with significant interest in offering check cashing services. A total of 22 credit unions or credit union-related organizations and initially five leagues participated in the project, which was designed to test the feasibility of offering transaction services to nonmembers. Over time, additional credit unions and leagues became involved. In this Special Report, we present the experiences of several credit unions, credit union service organizations and leagues that have opted to support fee-based check-cashing services to members and to the general public.

What are the credit union implications?

Based on the experiences of the pilot organizations, credit unions that follow in pursuing similar programs can expect the following:

  •  Check cashing can provide additional fee income and create an opportunity for the unbanked and under-banked to learn more about the value of credit union membership thus increase membership.
  • Check-cashing services are an extension of the historical role of credit in reaching out to consumers most in need of financial services. 
  • A check-cashing service needn’t be costly or risky. Working with proven
    techniques and systems, a credit union can capture the necessary information to verify user identity and registration.