By Prasad Krishnamurthy , Opinion Contributor — 10/22/21 11:35 AM EDT
Unsurprisingly, many consumers find bank fees to be unaffordable and choose to go without a bank account. Others would like to open a bank account but are on a blacklist of customers – maintained by the banks – who allegedly have unpaid fees or other past-account irregularities.
Perhaps surprisingly, around half of the customers at check-cashing outlets actually have a bank account. Bank customers utilize check-cashing outlets when they don’t have time to wait for their check to clear. Think of the family that needs to pay rent or a small business owner under pressure to make payroll. Therefore, between unbanked and banked consumers, there is a sizable demand for check cashing.
There are three main reasons why the Postal Service could offer check-cashing services for a few dollars a check rather than a percentage of the check’s value.
The usual objection that economists raise to price subsidies don’t apply to check cashing. Economic logic implies that consumers would be better off if the money spent on the subsidy were instead simply given to the consumer as cash. But a 5 percent fee to cash a paycheck acts like an income tax. Lowering the fee is therefore a pure income grant which, according to most economists, is the most efficient way to transfer resources.
Tags Wal-Mart U.S. Postal Service Financial services Banking Debt Overdraft Fee