<p>WASHINGTON – Fees are one of the reasons low-income people choose not to use banks and instead become customers of the growing check cashing and payday lending industry, according to U.S. Comptroller of the Currency John Hawke. Speaking to an American Bankers Association conference in Baltimore on March 18, Hawke placed his indictment of fees in the context of the strong growth in check cashing and payday lending. "Americans cashed 180 million checks at 11,000 check-cashing outlets, generating fees of $1.5 billion," Hawke said, adding: "Ten years ago, the payday loan industry hardly existed. Today up to 10,000 outlets nationwide provide payday loans totaling between $8 and $14 billion, generating fees totaling up to $2.2 billion. California alone has more payday loan offices – nearly 2,000 – than it does McDonalds and Burger Kings, and other states are not very far behind." Hawke cited a Treasury Department study that found average pretax returns on check cashing and payday lending of 34%. Another study, from Chicago, found payday lenders realized a return on investment of 24%. "ACE Cash Express, the biggest of the national check-cashing companies, with more than 1,100 outlets, reported average store profits of 23% for fiscal year 2001 – up 25% over a year earlier," Hawke said. Hawke revealed some of the results of a survey, sponsored by the Comptroller of the Currency, of 2,000 randomly selected individuals living in low and moderate income neighborhoods of Los Angeles and New York about their financial habits and experiences. One of the "statistically valid inferences" Hawke said could be drawn from the survey is that despite check cashers rising profits many "unbanked" people don't use them very much. Sixteen percent of people who don't have banking relationships get paid in cash, according to the survey, and of the remaining 84% who do get checks, 23% cash them at the institution against which the check was drawn which has no fee. The survey found that those who did use check cashers "use them sparingly," Hawke said, so that only about one-third of households without banking relationships had check cashing and money order costs of more than $100 per month. This is important, Hawke said, because "while check-cashers charge a lot, most banks charge more for the same services. For people who may typically cash only a few checks and make only a few payments per month, such bank accounts do not make sense," he said. Hawke cited data from a 1999 U.S. Public Interest Research Group (US PIRG) fee study that showed consumers having to carry a minimum balance of $616 to avoid fees and that if they could not do so the basic fees totaled an average of $18 per month or $218 per year to keep a checking account. "Indeed, earlier surveys have strongly indicated that the principal reason people give for not having a bank account is that it costs too much for their needs," Hawke said. "And while many banks have developed a variety of inexpensive products appropriate for low-income customers, they are often not well publicized," he added. Data from the 2001 bank fee survey has similar numbers. According to US PIRG, in 2001 a consumer would need to keep an average account balance of $703 in a large bank and $465 in a small bank in order to avoid paying an average of $266 per month in large banks and $191 per month in small banks. Role of credit union fees? Although credit unions charge lower fees than do banks, the US PIRG data suggests that credit union fees and minimum balances may still act as a barrier to some lower income people. According to US PIRG's survey of 144 credit unions, a credit union member would have to maintain a minimum balance of $345 to avoid having to pay an average of $101 in annual fees for basic checking, a decline of 10% in 1999. But Ed Mierzwinski, Consumer Project Director with US PIRG, said that number didn't reflect that a number of credit unions surveyed didn't charge fees at all or that a much higher percentage of credit unions surveyed offered free checking accounts to members. According to the 2001 survey, 67% of credit unions surveyed offered free checking accounts to their members under certain circumstances and that when a member committed to using direct deposit on the account the number jumped to 81%. Further, 17% of credit unions surveyed had checking products aimed specifically at senior citizen members and none of those charged for those accounts. Bill Hampel, chief economist for CUNA, said more credit unions started charging fees as corporate credit unions and other service providers began charging for services. He also noted that fees were one way to prevent loan bearing credit union members from having to subsidize credit union members that only had accounts and thus allow the credit union to offer more marketable rates on loans. "Fees are also a way to get members to consolidate accounts. Since all accounts cost the same, accounts with low balances are more expensive for the credit union," he said. Jeff Taylor, NAFCU Economist, agreed with Hampel's points and added that a credit union's decision to charge fees represented "a business decision only" and did not indicate any weakening of the credit union's determination to serve its members.</p>