How Checks Work

3/21/2014 by D. Cammarota

At one time or another, anyone who has used check cashing services has wondered why it costs so much money to cash a check. After all, a check cashing vendor is not offering a tangible product or an overly complicated, time-consuming service, so why is so much of your hard-earned money taken from your check? The answer is really quite simple if you consider a check cashing agent as similar to a money lender. While there is, of course, overhead for check cashing agencies - things like marketing, rent and payroll - the fees associated with cashing checks has mostly to do with risk that is assumed by the check cashing agency.

When you walk into a check cashing agency with a personal check, a payroll check, or any other type of check, you may know precisely where it came from, but the person on the other side of the counter has no idea who you are or under what account your check is drawn. Relying on the most up-to-date technology and expensive software applications, check cashing agents must take the time to research the account and get as much information as possible before releasing any funds. And, while it may seem as simple as the click of a mouse, there is much more to verifying checks than an electronic approval. With the multitude of scams out there - at home and abroad - there are often many hoops a check cashing agent needs to jump through. Sometimes there is lag time in approving a check - sometimes checks come with a security measure that requires an approval only by phone and with a specific person. And, with the level of sophistication of today's money scams, even when a check is seemingly approved by a legitimate financial institution, it may still be a bogus one leaving the check cashing agent holding the bag.

Also, because of the high-risk associated with cashing checks and the responsibility assigned to check-cashing vendors, they often are required to obtain costly state and federal licenses. And, like a bank, a check cashing agency must have considerable start-up capital so that they may pay out to the consumer while waiting for the funds to be reimbursed. Finally, it is important to remember that many check cashing locations offer payday or title loans - increasing their risk and liability.

So, when you think about all that is involved with cashing checks from unknown sources, the fees associated with check-cashing are actually quite reasonable. Keep in mind that there are many ways to reduce your cost if you know what questions to ask. Some check-cashing vendors offer a reduced fee for regular customers cashing checks from an institution that has already been approved. There are also discounts offered to self-employed people whose banking information can be verified on-the-spot.

The next time you enter a check cashing location, instead of begrudging the merchant their piece of the pie, think of all that goes into cashing checks and think also of the money you may be saving not having to pay monthly banking fees. If you intend to use the vendor on a regular basis, be sure to ask how you can minimize the amounts deducted from your check and you may be surprised at how little you are actually paying for such a valuable and convenient service.


  • Baretta on 8/2/2014 11:58:11 PM

    However they work, I don't like the fees.

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