Wal-Mart continues to try and push its way into check cashing market

The Connecticut Post ran a story over the weekend that serves as yet another signal Wal-Mart is looking to extend its financial services department. The feature focuses on Wal-Mart seeking to expand its check cashing services into Connecticut, announcing in television advertisements that it will cash a paycheck for up to a $3 fee, and hopes to be providing the service within a year in Connecticut, after it gets licensed.

Wal-Mart has actually been in the check cashing business for quite a while now - in 2004 the retailer began allowing customers to cash their pre-printed payroll or government-issued check, including tax refund checks, at designated registers in Wal-Mart Stores and Neighborhood Markets in 44 states. In the others (Connecticut, Massachusetts, New York, New Jersey, Nevada, Rhode Island) Wal-Mart was applying for a license to do so. In 2007, Wal-Mart announced plans to open 1,000 in-store MoneyCenters aimed at serving people without traditional bank accounts, and also debuted a reloadable, prepaid Visa debit card that didn’t require a bank account or proof of U.S. citizenship.

Since then, Wal-Mart has received a check cashing license in Massachusetts, and apparently continues to try for one in Connecticut. As it is, CT allows retailers to cash checks without a license, but they cannot charge more than 50 cents per check. With a license, Wal-Mart could charge up to 2% of the amount cashed, although Wal-Mart has maintained that it will charge no more than $3 per check. It sounds like a modest amount per check, and indeed, it could be a substantial savings over check cashing outlets or banks where charges can reach $10-15 per transaction. Still, this is most likely nothing more than a way for Wal-Mart to attract more sales in its stores, while breaking further into a business retailers have generally shied away from.

Hank Shyne, executive director of the Financial Service Centers of America Inc., was well aware of Wal-Mart’s move and said it is something his group is paying attention to. He added regulations in the various states make it difficult for the retailer to come into the business. But it is a big and attractive market, he said. “There are a lot of people who live paycheck-to-paycheck and need the money immediately,” Shyne said. In New York in 2007, there were 32 million checks cashed worth $16 billion. “Nationwide it’s more like a $160 billion business.”

It wouldn’t be surprising if the ad push is ultimately aimed at getting more people using its MoneyCenters, and its reloadable debit card in particular.

Wal-Mart’s website advertises the check cashing option with its $3 maximum check fee, but then points out that cash can instead be loaded onto the Wal-Mart MoneyCard for no fee at all.*

Of course, that asterisk means check out the actual cardholder agreement, which lists a number of alternative fees, including: a $1.95 ATM transaction fee, $.75 ATM balance inquiry fee, $4.64 Wal-Mart cash-loading fee, $2.00 paper statement fee, $2.00 fee should you need to talk to someone on the phone, and a $4.94 monthly maintenance fee.

So, with the $3 flat fee plus all the hidden fees, are our low-income, banking-starved fellow Americans (or non-Americans, since the card requires no proof of U.S. citizenship) really better off using Wal-Mart and the $3 bargain check cashing that its offering?**

And while you consider that, think about this - the Connecticut Post mentions that in New York in 2007, there were 32 million checks cashed worth $16 billion...Nationwide it’s more like a $160 billion business. Let’s say Wal-Mart’s MoneyCenters and advertising and nationwide presence help it grab 10% of the check cashing market in the U.S. That $160 billion could translate into 320 million checks or more - 10% of those checks, at $3 a pop? That’s $96 million a year through nothing more than check cashing fees...that’s enough to settle two wage and hour class actions per year!

Wal-Mart says, ‘check please’ [Connecticut Post]

Posted by Corey Himrod on Monday, February 09, 2009

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