Fifteen years ago a young activist named Pat Quinn began a crusade against currency exchanges. At the time he had no political base, and few people paid any attention. Quinn's still waging that campaign, only now he's the state treasurer and people all over Illinois are taking notice. His latest effort, a proposal to cut the fees currency exchanges charge to cash government benefit checks, has created intense turmoil and debate.
Quinn calls it the first step in his "Smart Money" campaign, an effort aimed at educating low-income residents about finances. If that part of the campaign is successful, Quinn eventually hopes to force moneylenders and banks to invest in and redirect more money to poor communities. "I want to break what I call the culture of currency exchanges," says Quinn. "In many cases people only use currency exchanges because they don't know there are other options, or because these options have been denied them. I want poor people to get self-sufficient so they learn what banks are and how they can use the resources of banks to rebuild their communities. I want banks to look at markets that they have overlooked. If the first step is forcing currency exchanges to lower their exorbitant rates, well, that's the step I will take."
Currency-exchange operators accuse Quinn of distortion, adding that many operations will go out of business if the state adopts the treasurer's proposal. "Pat Quinn is using us as a football in his political game," says Gary Gagerman, who operates several currency exchanges and is the president of the Community Currency Exchange Association of Illinois. "For very, very poor people currency exchanges are a lifeline--we don't dispute that. But that's because we meet a need that banks ignore; we go where banks won't venture. If Quinn wants banks to invest in poor neighborhoods, that's one thing. But in the meantime he should stop beating up on us."
At issue is how much currency-exchange operators charge to cash checks. Currently they are allowed to charge 1.2 percent of the face value of a check, plus a 90-cent handling fee. According to Quinn, the fee for cashing a monthly general-assistance check of $154 amounts to $2.74, or $32.88 a year. A woman raising a family on a monthly $333.10 Aid to Families with Dependent Children check pays a check-cashing fee of $4.89, or 58.68 a year.
"It's not only people on public assistance who are affected by these high rates, but retired people on Social Security or people receiving unemployment compensation or assistance to the aged, blind, and disabled," says Quinn. "They're paying excessive amounts of their income each month--money they need for food, clothing, and shelter--just to cash their checks."
The Currency Exchange Association asked the Department of Financial Institutions, the state body that regulates currency exchanges, for a hearing to raise their rates to 2 percent on checks over $1,000 and to 1.75 percent on checks between $300 and $1,000 (rates would remain the same for checks under $300). The department denied the request. Then last spring Quinn asked the department for a hearing on a proposal to lower the rates to a flat 90-cent fee. The department denied his request as well. As a gesture to both sides the department decided to hold two hearings in August on the matter of check-cashing fees in order to give each side an opportunity to present its case. It's not certain how the department stands on the issue, or whether it will change the rates at all.
In preparation for the Chicago hearing Quinn mobilized a diverse array of supporters, including Cardinal Bernardin, several public-aid recipients, and John Binder, an associate professor of finance at the University of Illinois.
The public-aid recipients offered moving accounts of their anger and frustration at having to spend so much to cash checks. Cardinal Bernardin released a statement accusing currency-exchange operators of exploiting public-aid recipients. And Binder presented an analysis that, among other things, claimed the currency-exchange industry makes great profits, especially as compared to banks and manufacturers. "The average return on equity for currency exchanges was 104.25 percent compared to 9.10 percent for banks and 11.98 percent for manufacturing corporations," Binder testified. "In other words, the return on equity for currency exchanges was eight times greater than that of manufacturing firms and ten times greater than that of banks."
As for Quinn, he provided the thunder: "The number of public-aid or governmental benefit checks that are dishonored is infinitesimal," says Quinn. "There's no risk to cashing them. To charge any rate above 90 cents is excessive. But poor people have to swallow these abusively high rates because they have nowhere else to go. They constitute a captive market."
In addition to cutting the currency-exchange rates, Quinn wants banks to cash benefit checks for no more than $1. "We want to create competition to the currency exchanges in the market of cashing riskless checks," says Quinn. "The exchanges are a cartel, a monopoly. They take money from their customers and they don't give any of it back to the community. They don't make loans. They don't invest in housing. They don't create new economies. I'd like to set up direct-deposit programs, where the state deposits those checks directly into a bank and recipients then draw checks from that account. The key is to introduce banks to a new market of consumers, and that's what we are trying to do. We want banks to look at markets they have overlooked, and we want poor people to learn about checking accounts, competitive interest rates. We want them to enter the financial mainstream."
Such talk outrages currency-exchange operators, who accuse Quinn of mixing noble rhetoric with crude distortions. "First of all, it's absurd to compare us to banks or manufacturers, like that professor Binder did," says Jerome Gagerman, Gary Gagerman's cousin, who also operates several currency exchanges. "We're a service industry. If you're going to compare us to another industry, compare us to lawyers. Secondly, it's a lie to say we don't have risks. There are tremendous risks and costs to operating a currency exchange. In the last year, I know of stores damaged by storms, vandalized by rioters, and held up. We operate out of high-crime areas. To say there is no risk is ludicrous.
"If there were no cost to cashing these checks, as Quinn suggests, all merchants would be cashing them for way less than us. But we have expenses. Utilities, property taxes, employee salaries, insurance, my own money-borrowing costs--that's right, I have to borrow money each day from a bank--go into the cost of cashing a check. After you add up all my expenses, I figure I'm making about 15 cents to cash a $154 general-assistance check. We operate on volume. We have to cash a lot of checks to make money. But if the state cuts my fee to 90 cents, we're going to lose money cashing these checks and so we won't cash them anymore. Then where are the recipients going to go? Quinn will end up hurting the very people he says he wants to help."
Both Gagermans contend that currency-exchange operators should be given credit for taking the risk out of cashing general-assistance checks. "Years ago general-assistance checks were mailed directly to the recipients, and there were horrible abuses," says Gary Gagerman. "Checks were stolen from mailboxes. People never got them. There was something like 90,000 lost or stolen checks a year, each one costing the state about $200 to investigate. So now the state delivers those checks--by armored truck--to currency exchanges closest to where the recipient lives. We don't get paid one cent for that service. We only make money if people cash those checks here. They can pick up those checks and walk right out our door and cash them somewhere else. And guess what? A lot of them do. It used to be we cashed about 90 percent of general-assistance checks. Now we're down to about 70 percent. We're doing such a good job of cutting down on theft that other places, like grocery stores, will cash those checks. But instead of thanking us, Quinn kicks us in the teeth."
The Gagermans also feel they are unfairly criticized for providing a service to communities that banks ignore. "I run a currency exchange at Austin and Madison," says Gary Gagerman. "Right across the street is the First Bank of Oak Park. Hey, it's a free country. If that bank wants to, it can make a pitch for my customers. It can offer to cash public-assistance checks for less than me." But the First Bank of Oak Park, to follow up on Gagerman's example, will not cash a check unless the recipient has an account there. They also charge $3 a month on any checking account when the balance falls below $500, an amount few public-aid recipients can maintain.
"The banks have priced poor people out of their services and it's gotten worse since the deregulation of the early 80s," says Jerome Gagerman. "And don't forget how much banks will charge you if you overdraw your account. You bounce a check and it can cost you $15. What's that going to do to a poor family's budget? And yet we're the bad guys, right?"
Quinn and the Gagermans have been firing their arguments at one another for almost two decades now with little result. Quinn says he plans to press ahead with his effort to force the currency exchanges to cut their rates. He says, "It is a crusade for me." And the Gagermans and their allies vow to fight him every step of the way.
Art accompanying story in printed newspaper (not available in this archive): photo/Bruce Powell.