How the New SEPTA Smart Card Could Save People From the Predatory Check Cashing Industry

Duncan Black makes an exciting catch in the Governing article on SEPTA:

Deon said the new brand-name smart card will be a godsend to SEPTA’s riders, including those who don’t use banks. “Why should they pay $900 a year in fees at check-chasing trailers?” he said, when they can directly deposit their checks into the new smart cards and pay all their bills without exorbitant fees.

I have no idea how many Philadelphians rely on check cashing businesses for their banking needs, or if $900 a year is a good estimate of what the average person pays in fees, but cutting out the fees would mean a nice raise for a lot of people.

A public option for plain vanilla depository banking is a pretty good idea that’s been tossed around by some progressive writers, and it would be awesome to see SEPTA step in to that space and provide people with basic debit cards.

Comments

  1. John says:

    Dangerous ground – a quasi-government entity competing directly with private industry is never a fair fight and should not be permitted.

    I’d rather require banks to offer this account structure just as SEPTA’s offering is structured. You get the account structure that poor people need and it doesn’t cost taxpayers a dime.

    • Jon Geeting says:

      That’s something I’m usually wary about too, but in this case I’d welcome an unfair fight between SEPTA and the check cashing industry.

  2. I’ve never understood why people used check cashing places to begin with. Why not just open a bank account? Just about every bank has some sort of free checking account option. Apparently I’m missing something pretty huge here.

    • Jon Geeting says:

      I’d like to hear John’s take on that. One issue is that banks often won’t open branches in poor neighborhoods, and very poor people have limited mobility (cars are expensive, public transit often inconvenient). So they’ll go someplace in the neighborhood that’s convenient to get to, even though it’s a rip-off. Alan Jennings of CACLV has told me about his efforts over the years to publicly shame banks into opening locations in poor neighborhoods.

      • I’m not sure it’s purely accessibility. As an example, in downtown Easton there is a check cashing place on Centre Square with huge gaudy neon lights in the windows, but a block away there are two banks (Sovereign and PNC).

  3. John says:

    There are plenty of bank branches, even in poor neighborhoods, but you’re not going to see many more built so we have to work with what we have. Todd is right, access isn’t the problem, it’s ease of use.

    Several parts to this discussion:

    Bank branches are very expensive to build – $3 million easy by the time you’re done. The economics alone require large business volume, otherwise they’re losers – then couple that with the continuing trend away from brick/mortar to online banking and the economics are even tougher to make work. On the other side, check cashing facilities are comprised of an office in a strip mall, 2 desks/chairs and some bulletproof glass.

    Banks are expensive to operate – staffing levels are much higher due to regulatory burdens. Check cashing facilities are lean and inexpensive.

    For cost of services, banks are cheaper but are a pain in the ass to deal with, again due to regulatory burdens. Check cashing facilities are expensive but very easy to deal with.

    At the end of the day, the way to address this is to require every FDIC insured bank to offer a specific transaction account to low/mod income individuals. No account fees, no debit card fees, no ATM fees. Once you go to a bank and open the account, you pretty much never have to go back and you have the entire US ATM system as your bank – you can make deposits into any ATM and they get credited back to your bank account.

    The elephant in the room is illegal aliens. They use check cashing facilities because they can’t open bank accounts. That part has to go to immigration reform, I’d rather get a deal done to help citizen low/mod people and legal ailens than hold it up for the other argument.

    • Jon Geeting says:

      Interesting, thanks for the explainer. Could imagine a reform such as you suggest coming through the new Consumer Financial Protection Bureau.

      • John says:

        If they ever get around to helping consumers sure. But beware bureaucrats ‘helping.’ It needs to be simple and straightforward – a customer that has to sign 15 forms and get 25 regulatory disclosures won’t open the account, they’ll stay with the check cashing facility.

        This idea has been floated for years it’s not new. Community banks fill some of the void as they have ‘no fee’ accounts as standard offerings, but these didn’t reach much into low/mod neighborhoods. Every time it was floated at the national level the big banks donated a bazillion $$ to whichever party was in charge at the time and it magically went away.

        • Jon Geeting says:

          Well that’s supposed to be the point of the CFPB – making it easier for people to make informed responsible choices about financial products, and increasing access to plain vanilla versions of products for people whose needs in this area aren’t super sophisticated. Check out Elizabeth Warren’s original article that ended up launching the bureau. It’s amazing how much vitriole these ideas have attracted, when the point is just to make markets work better by decreasing information assymmetries.

          • John says:

            I’m 100% for simplification. And I’m 100% certain they won’t make it more simple, it’ll just be different language that is just as complex.

            Been through this drill with regulators many times, it never works. When you get bureaucrats and lawyers involved it’s never simple.

            Want to get a headache? Read all the disclosures you get when you open a checking account – all required by regulation. Want to get a migraine? Read mortgage application and closing documents.

            And these are after the last rounds of “simplification.” Regulations require certain specific language, certain font sizes, and certain regulations be disclosed separately (meaning a separate piece of paper and signature for each of those regulations).

  4. jenjen says:

    I just saw a smartcard reader attached to an existing fare box on the 32 bus. My questions is, why can’t the Transpass and Trailpass be incorperated into the system? It seems as though SEPTA wants more money from Monthly users. A card is a card. I definitely do not want to be carrying around my credit card and swiping it to pay for a fare.

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