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There are many places around here, often co-located with pawn shops or payday-loan places, where they offer to "cash cheques" immediately, with some very high fee.

How does this get any business? Usually cheques written to "cash" or something can just be cashed for free at the bank right? Wouldn't the only cheques that people would cash at these places be bad cheques? And wouldn't this mean that the business will lose a lot of money since it pays out cash but then has the cheque bounce? Who uses these services exactly?

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    Please edit and add a country tag. – Dheer Aug 8 '15 at 15:30
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    Have a friend who uses a different bank write you a moderate sized check (> $100 if in US) and see if you can get that in cash in person with no fees, that day, without using your regular bank. Your assumptions may be challenged... – user662852 Aug 8 '15 at 16:11
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    There is no country tag on the question, I assume that this for the US. In France for instance it all the bank-provided cheques are "slashed" (two parallel bars), which means one cannot "cash" it (get some physical cash in exchange). You can only have its value transferred to a bank account (by a bank,or specific bank-like institution). – WoJ Aug 9 '15 at 16:44
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    A lot of the answers seem to have shady business practices. Maybe the bank just happens to be closed and they need the money NOW. Most banks I know have notoriously bad hours and most check cashing places I now are open late or 24/7. – marsh Aug 9 '15 at 17:24
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    @user662852 I've actually cashed a check written on a different bank by a person I didn't know, at that bank, and got the cash on the spot, because I wasn't willing to risk it bouncing and my bank charging me fees for that. – Michael Aug 9 '15 at 17:27
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This answer is based on my understanding of the US banking system. We have check cashing businesses here too, which are just like what you describe, except for the spelling :-)

Let's consider what "cash it for free at the bank" really means, and why it might not be an option for everyone. One key issue is "which bank?"

As an example, suppose that I have an account at ABC Bank. I take out my checkbook for that account and write you a check for $500. (Terminology: In this case, I am the drawer or maker of the check, ABC Bank is the drawee bank, and you, user54609, are the payee. Disclaimer: "You" here is meant as a generic pronoun and I do not mean to insinuate that anything here actually applies to you personally.)

There are two common things you might do with the check:

  1. If you have an account at some bank, say XYZ Bank, you might take the check to XYZ Bank and deposit it in your account. (You might be able to do this through an ATM, mobile app, or by mail, instead of in person.) XYZ Bank does not have a way to verify with certainty that the check is valid (e.g. they don't know what my signature looks like, nor whether I actually have $500 in my account at ABC), so they send it to ABC Bank, which verifies the check and transfers $500 to XYZ. (This is usually done through a central clearinghouse, such as the Federal Reserve in the US, and in some cases an image of the check may be sent electronically, instead of the physical check.) This process takes some time, so XYZ may not make the $500 available to you right away - there may be a hold period before you can withdraw that $500 from your account.

  2. You could take the check to ABC Bank, in person. They will verify on the spot that the check is valid and that you are in fact user54609. If everything looks good, they will hand you $500 in cash (perhaps subtracting a fee of a few dollars).

Now we can see some possible problems with each of these approaches.

For 1:

  • Maybe you don't have a bank account at all. There are many possible reasons:

    • You don't have enough money to meet the minimum balance that a bank account would require.

    • You used to have an account, but you overdrew or otherwise misused an account, so the bank closed it. They then entered you in a registry such as ChexSystems which ensures that other banks know about this, and so no other bank will open a new account for you.

    • You immigrated to the country illegally and cannot get the documents (driver's license, social security number, etc) that a bank normally requires to open an account.

    • You simply don't like the idea of keeping your money in a bank.

  • Maybe you do have an account at XYZ Bank, but it's in another town. You need the cash today, so you can't use mail or a mobile app, and third-party ATMs usually don't accept deposits.

  • Maybe you need to spend the money today, and XYZ Bank would place a hold.

For 2:

  • ABC Bank may not have a branch you can conveniently visit. Maybe the nearest one is a long way away, in another city or across the country. Or maybe ABC is an online bank with no physical branches at all. Maybe it's in the same city, but you don't have transportation to get you there. Or maybe it's simply less convenient than the check-cashing business on the corner.

  • Maybe it is after usual banking hours, or a weekend, and ABC Bank is closed, but you need cash now.

In any of these situations, "cash it at the bank" might not be a viable option, and so you might reasonably turn to a check cashing business instead. As you say, you will pay a much higher fee there, but maybe it is worth it to you, or you just don't have any choice.

Another possibility, of course, is that you are poorly educated about the banking system, and you don't really understand that 1 and 2 are options, or how to go about them. But there's this storefront on the corner that says "Check Cashing", so this seems like a low-stress, uncomplicated way to exchange this piece of paper for money.

As such, there certainly are people who legitimately might want to cash a valid check at a check-cashing business.

Check cashing business do of course take some risk of fraud, since they can't necessarily verify the check. There are sometimes steps they can take to minimize this risk. Sometimes they can call ABC Bank and check that I have sufficient money in my account. Maybe they'll only accept certain kinds of checks, such as payroll checks from well-known companies for which you can produce a matching pay stub. And they can demand identification from you (perhaps allowing more flexible options than a bank), which helps ensure that you are the payee, and would make you easier to track down if you did commit fraud. But they will probably lose some money this way, so they will have to make their fees high enough to cover those losses.

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    Walk into a grocery store with a $500 check and no driver's license and see whether they will cash it. We are talking people who are paid in check 'under the table' . As Nate pointed out, some of them are here illegally so have no documents. The issue is not $20 checks , it's paychecks or checks the size of paychecks. – chrisfs Aug 8 '15 at 20:48
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    This answer covers the legitimate needs that a check cashing shop serves, but it doesn't get into the more predatory aspects of the "check cashing industry" (payday loans, fees that exploit the ignorant and unbanked, etc.) – LessPop_MoreFizz Aug 9 '15 at 14:48
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    @chrisfs you can't be paid by check under the table. The check itself is proof. – Andy Aug 9 '15 at 16:28
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    @chrisfs: We are talking people who are paid in check 'under the table' . Many, many people who are not being paid under the table nevertheless have no bank account. It's an extremely common situation among the working poor in the US. – Ben Crowell Aug 9 '15 at 19:33
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    It amazes me time and time again how the check system in the US is able to still live on in a day of online banking and close-to-instant credit transfers available like in europe... simply astounding – Florian Peschka Aug 10 '15 at 7:02
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In my experience (in the US), the main draw of check-cashing businesses (like "CheckN2Cash" is that they will hold your check for a certain period of time. This is also known as a "payday loan". Rather than bringing them a check someone else has written you, you write them a check yourself, postdated, and they pay you the amount on the check less their fees, and agree not to cash the check until a future date. So if you don't have the money right now but you need it before your next payday, you visit a check-cashing business and get the money, and it'll be withdrawn from your account after your next paycheck.

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    Yes, this is more in line with what I'd understand check-cashing to be. Some of these services charge unbelievable rates; for example, $10.50/$100/14 days, or an equivalent APR of > 1250%. – scruss Aug 9 '15 at 22:03
  • It's true that many check-cashing places also offer payday loans, but they are separate services and people do cash real (i.e., not written by them) checks without making use of payday loan services. – BrenBarn Aug 12 '15 at 1:49
  • @scruss If you calculate a $10 charge to borrow $100 for 2 weeks as an interest rate, sure, it sounds outrageous. But the payday loan company has to pay somebody to interact with the customer and do the paperwork. Right there probably costs them $5 or so. If they have to do a credit check, that costs. They have to cover losses for people who don't pay. $10 is not an unreasonable charge from that perspective. – Jay May 21 '18 at 22:35
  • @Jay it's still preying on folks who don't qualify for a credit card or overdraft facility – scruss May 22 '18 at 1:39
  • @scruss If people don't qualify for a credit card or overdraft at the bank or other easy loans, then payday loans may be their only option. I've never used one and I probably never will. But for some people it's the best option available. – Jay May 22 '18 at 2:09
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How does this get any business?

You'd be surprised on how much profit these type of businesses can bring in and the number of people who cash their checks this way. They make profit off people who want their checks cashed ASAP.

Usually cheques written to "cash" or something can just be cashed for free at the bank right?

Yes, most banks cash your check for free. Some may not cash it right away and may require a few days to process. Some charge a small fee if the check is not from the same bank. Some personal checks may not even be processed the same day as well.

Wouldn't the only cheques that people would cash at these places be bad cheques?

Yes and no. Yes because it may be "easier" to try to cash a fraudulent check at these type of check cashing places. However, some places may only cash business checks and require your ID in which they write down the information in order to possibly track you down in the future. Also some places only cash a check to a certain amount.

And wouldn't this mean that the business will lose a lot of money since it pays out cash but then has the cheque bounce?

Of course the business loses money if the check bounces or is fake. That is why they try to minimize their losses with certain requirements that needs to met before the check can be cashed.

Who uses these services exactly?

Just about anyone who needs their check cashed ASAP or like ChrisW stated in his answer is trying to keep their money on the low. There is a demand for this service even though it may seem shady to you.

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    RE: Losing money when checks bounce... That's also why they charge the rates they do. They prevent some of it, but have pretty lax requirements. The assumption that some percentage of the checks they cash will bounce or will be fake is figured in to their bottom line. – nhgrif Aug 9 '15 at 13:12
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    Some payday loans place aggressively pursue people who don't pay back the loans. money.cnn.com/2015/01/08/pf/payday-lenders-texas – chrisfs Aug 10 '15 at 5:58
  • @chrisfs thanks for the interesting read. although i can sympathize with the borrowers, I believe America's laws on debt is somewhat lenient. – NuWin Aug 10 '15 at 7:01

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protected by Chris W. Rea Sep 23 '15 at 20:53

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