Which of the following statements about check cashing companies is false?

Which of the following statements about check cashing companies is false?

a) They charge fees for their services

b) They are regulated by federal agencies

c) They provide immediate access to funds

d) They are a cost-effective way to cash checks

Answer: d) They are a cost-effective way to cash checks

The statement in option d is false about check cashing companies. These services turn out to be more costly than conventional banking services, which points towards the fact that such services are not financially viable for the majority of consumers. A check cashing company has relatively higher charges compared to the value of the check and therefore its fees can massively deplete the value of the check in question.

For instance, a normal check cashing service may range from a minimum of 1% up to a maximum of 12% of the value of the check in question as determined by the kind of check and laws that govern the business. This implies that the same person can spend $10 to $120 if he wants to cash a $1,000 paycheck. Whereas most banks do not charge customers for checking to cash if they operate an account with the bank non-account holders are also able to cash checks drawn with that particular bank for a token or no cost at all.

Furthermore, the total amount a person has to spend to use these services is not negligible especially when one has to employ them frequently. Imagine a bi-weekly paycheck user of a check cashing service; this person can spend more than $300 in fees within a year. This is especially costly to the users since the users of these services are normally the less fortunate in society who cannot afford basic bank accounts.

Check cashing companies certainly offer a service – lifting the need for immediate cash and catering to the unbanked – although the overall service offered is not inexpensive to keep a regular check cashing business. These services attract high fees making it expensive to cash checks and the statement that such services are cheap methods to cash checks is therefore misleading.