Check cashing is a means for many individuals to cash their paychecks without the extra demands of a banking account. For a small fee, check-cashing companies, stores, and banks provide immediate cash with no further obligation to the payee. All check-cashing companies must be registered with the federal government as a Money Service Business. However, states regulate laws pertaining to such matters as fees, licensing and check-cashing loans.
Oversight on check-cashing fees is the responsibility of the state's banking department. In states such as New York, its banking department regulates fees, which are currently about 2 percent. Thus, if a check cashing company cashes a $400 check, then it can only charge $8. In New Jersey, check fees are expected to rise slightly above 2 percent while the state of Oregon proposes a 2 percent fee or $5, whichever is greater. According to the FDIC, states typically charge fees ranging from as low as 1 percent of the amount of the check to 4 percent. Florida permits up to 5 percent. Banks often charge a $5 fee to cash checks that are drawn on its accounts. All fees are as of June 2010.
Licensing requirements greatly vary from state to state. In Georgia, the Department of Banking and Finance licenses check-cashing companies according to two categories: registrants and full-service. Registrant licenses are granted to check-cashing companies that charge no more than 2 percent of the amount of the check and do not advertise. In contrast, a full-service license is granted to those companies that charge more than 2 percent. Check-cashing companies with this license are required to advertise. In Massachusetts, the Commissioner of the Consumer Affairs and Business Regulations Department reviews all licensing requests. Among the requirements is compliance with the Uniform Check Cashing Fee, which determines maximum fees for check cashing companies in every state. Thus, each state grants check-cashing licenses based on fee arrangements, public notice of the fees charged for service (there must be multilingual notices), and a minimum amount of "cash-on-hand."
Check-cashing loans provide cash to approved individuals until they receive their next paycheck. Typically, this loan is re-paid with interest. Also, many companies provide both check-cashing and check-cashing loan services, also known as payday lending. Most states allow a maximum check-cashing loan of $500. Idaho permits up to $1,000. Additionally, most states only allow a 10 to 15 percent interest rate or $15 per $100 of the loan. South Dakota, Utah, Wisconsin and Tennessee have no existing laws pertaining to interest rates for these loans.