The Importance of Check-Cashing Businesses to the Unbanked: Racial/Ethnic Differences

37 Pages Posted: 4 Jan 2004

See all articles by Sherrie L.W. Rhine

Sherrie L.W. Rhine

Federal Deposit Insurance Corporation

William H. Greene

New York University Stern School of Business

Maude Toussaint-Comeau

Federal Reserve Bank of Chicago

Date Written: August 2003

Abstract

The roughly 9.5 percent of all U.S. families that are without some type of transaction account (unbanked) are disproportionately represented by minorities. The unbanked often must rely on alternative ways to carry out basic financial transactions such as cashing payroll checks and paying bills. This study analyzes unique survey data and finds that a consumer's decision to patronize check-cashing businesses is jointly made with the decision to be unbanked. For the unbanked, these businesses are an important source for financial services. Attributes that contribute to these decisions, however, vary for each racial/ethnic group. Latent preference effects are also observed to influence this joint decision for Blacks and Hispanics. These findings may explain in part why the provisions of the Debt Collection Improvement Act (DCIA) of 1996 have not been more successful in bringing unbanked federal benefits recipients into the financial mainstream.

Consumer participation in mainstream financial markets can improve their ability to build assets and create wealth, protect them from theft and discriminatory, predatory or unsavory lending practices, and may promote economic stability and vitality in the communities where they reside. By more fully understanding a consumer's financial decisions, policies can be better directed to improve the effectiveness of legislation such as the DCIA of 1996 in encouraging mainstream financial market participation.

Keywords: unbanked, check-cashing business, currency exchanges, bivariate probit model

JEL Classification: G21, D12, D14

Suggested Citation

Rhine, Sherrie L.W. and Greene, William H. and Toussaint-Comeau, Maude, The Importance of Check-Cashing Businesses to the Unbanked: Racial/Ethnic Differences (August 2003). FRB of Chicago Working Paper No. wp2003-10, Available at SSRN: https://ssrn.com/abstract=439882 or http://dx.doi.org/10.2139/ssrn.439882

Sherrie L.W. Rhine

Federal Deposit Insurance Corporation ( email )

550 17th Street, NW
Washington, DC 20429
United States

William H. Greene (Contact Author)

New York University Stern School of Business ( email )

44 West 4th Street
Suite 9-160
New York, NY NY 10012
United States
212-998-0876 (Phone)

HOME PAGE: http://people.stern.nyu.edu/wgreene

Maude Toussaint-Comeau

Federal Reserve Bank of Chicago ( email )

230 S. LaSalle St.
Chicago, IL 60604
United States
312-322-8443 (Phone)

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