SD38 - The Availability of Affordable Banking Services to Low-and Moderate- Income Consumers, Bank Policies on Cashing Government Checks for Nondepositors, and the Emergence of Unregulated Check-Cashing Businesses in Virginia

  • Published: 1990
  • Author: Joint Subcommittee
  • Enabling Authority: Senate Joint Resolution 226 (Regular Session, 1989)

Executive Summary:
Authority for Study

Senate Joint Resolution 226 (SJR 226) of 1989 (Appendix A) established a joint subcommittee (the Subcommittee) to study the availability of banking services to lower income groups; threshold identification requirements for banking services and its impact on low- and moderate-income consumers; and the unregulated check-cashing industry.

The seven-member Subcommittee was comprised of three members of the Senate Committee on Commerce and Labor appointed by the Senate Committee on Privileges and Elections, and four members of the House Committee on Corporations, Insurance and Banking appointed by the Speaker of the House.

Senator Robert C. Scott served as Chairman of the Subcommittee. Other members appointed to serve from the Senate were Richard J. Holland and J. Granger Macfarlane.

Delegate Gladys B. Keating served as the Subcommittee's Vice-Chairman. Other members appointed to serve from the House of Delegates were V. Thomas Forehand, Jr., George H. Heileg, Jr., and William T. Wilson.

Arlen Kent Bolstad, Esq., Mark C. Pratt, Research Analyst, and C. William Cramme´ III, Esq., all of the Division of Legislative Services, served as legal and research staff to the Subcommittee. Tom Gilman, Chief Senate Committee Clerk, provided administrative assistance to the Subcommittee.

Overview

1. Summary of the issues and the Subcommittee's work. The Subcommittee examined four issues:

1) The availability of affordable checking accounts from Virginia banks and savings institutions;

2) Bank policies on cashing government checks for nondepositors;

3) Identification of individuals needed by banks to reduce fraud and minimize losses; and

4) Fees and practices of check-cashing businesses.

The Subcommittee held its first meeting in Richmond on June 23, 1989. An initial staff report summarizing the study issues and available background materials was presented: testimony was received from key interest groups, including representatives from consumer groups, financial institutions' trade associations, a state check-cashers association, and low-income service organizations such as the Virginia Poverty Law Center.

The Subcommittee subsequently convened public hearings in Chesapeake, Roanoke, and Alexandria. Two final meetings were held in Richmond to receive summary reports from interest groups, review all recommendations received during the study, and establish study findings and final Subcommittee recommendations to the Governor and the General Assembly.

2. Study focus; policy considerations. A significant segment of the Commonwealth's population does not participate in the banking system. That is, they do not own checking or savings accounts, and they do not use financial institutions to pay their bills or manage their financial affairs. A high percentage of individuals and families outside the banking system are in the lower income groups.

These observations raise three questions -- one of policy and two of fact. First, the questions of fact: Whether basic banking services are currently available and accessible to individuals in the Commonwealth with low and moderate incomes. Second, whether individuals in this economic group remain outside the banking system because of structural barriers in the banking system or simply as a matter of preference or choice.

The question of policy is simply whether the Commonwealth should require banks and savings institutions to provide discounted or free financial services to this or any income group to encourage their participation in the banking system. A related question is whether financial institutions alone or all citizens of the Commonwealth should bear the direct and indirect costs of providing such services.

3. Federal activity. During the 101st Congress, two bills were introduced in the United States Senate requiring federally insured financial institutions to provide certain financial services to lower income groups. First, S-906 would require these institutions to cash nondepositors' government checks; cashing fees would be limited to amounts sufficient to recover costs. S-907 would require federally insured institutions to offer low-cost, basic transaction ("lifeline") checking accounts. At this writing, both bills are before the Senate's Committee on Banking, Housing and Urban Affairs. Companion bills, HR-3180 and HR-3181, were introduced in the U.S. House of Representatives and are presently before the House Committee on Banking, Finance, and Urban Affairs.

4. Sister-state activity. Massachusetts financial institutions are obligated to cash federal and state pension checks, Social Security checks, and Supplemental Security Income checks, without charge, for those who register at the cashing bank. Illinois banks must offer a basic banking account to those age 65 and older. Minnesota requires financial institutions to offer a basic, low-cost checking account to those whose family income is below the federal poverty line. Connecticut law directs banks to cash public assistance checks, without charge, and indemnifies them against fraud-related losses. New York, Connecticut, Illinois, and New Jersey license check-cashing stores and set limits on cashing fees.