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The importance of check-cashing businesses to the unbanked: racial/ethnic differences

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Author Info

  • William H. Greene
  • Sherrie L.W. Rhine
  • Maude Toussaint-Comeau

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.

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Bibliographic Info

Paper provided by Federal Reserve Bank of Chicago in its series Working Paper Series with number WP-03-10.

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Date of creation: 2003
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Handle: RePEc:fip:fedhwp:wp-03-10

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Keywords: Nonbank financial institutions ; Debt management ; Checks;

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References

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  1. anonymous, 1999. "Banking relationships of lower-income families and the governmental trend toward electronic payment," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), issue Jul, pages 459-473.
  2. Arthur B. Kennickell & Martha Starr-McCluer & Annika E. Sunden, 1997. "Family finances in the U.S.: recent evidence from the Survey of Consumer Finances," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), issue Jan, pages 1-24.
  3. Constance R. Dunham, 2001. "The role of banks and nonbanks in serving low- and moderate income communities," Proceedings 903, Federal Reserve Bank of Chicago.
  4. Joseph J. Doyle & Jose A. Lopez & Marc R. Saidenberg, 1998. "How effective is lifeline banking in assisting the 'unbanked'?," Current Issues in Economics and Finance, Federal Reserve Bank of New York, vol. 4(Jun).
  5. Sherrie L.W. Rhine & Maude Toussaint-Comeau & Jeanne M. Hogarth & William H. Greene, 2001. "The role of alternative financial service providers in serving LMI neighborhoods," Proceedings 785, Federal Reserve Bank of Chicago.
  6. Edward S. Prescott & Daniel D. Tatar, 1999. "Means of payment, the unbanked, and EFT '99," Economic Quarterly, Federal Reserve Bank of Richmond, issue Fall, pages 49-70.
  7. Jong-Il Kim & Lawrence J. Lau, 1996. "The sources of Asian Pacific economic growth," Canadian Journal of Economics, Canadian Economics Association, vol. 29(s1), pages 448-54, April.
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Cited by:
  1. Seligman, Jason S. & Bose, Rana, 2012. "Learning by doing: Active employer sponsored retirement savings plan participation and household wealth accumulation," The Quarterly Review of Economics and Finance, Elsevier, vol. 52(2), pages 162-172.
  2. Stanley, Denise & Bhattacharya, Radha, 2008. "The informal financial sector in the U.S.: The role of remittances," The Quarterly Review of Economics and Finance, Elsevier, vol. 48(1), pages 1-21, February.
  3. Néstor Gandelman, 2008. "Female-Headed Households and Homeownership in Latin America," IDB Publications 43758, Inter-American Development Bank.
  4. Michal Grinstein-Weiss & Yeong Yeo & Mathieu Despard & Adriane Casalotti & Min Zhan, 2010. "Does Prior Banking Experience Matter? Differences of the Banked and Unbanked in Individual Development Accounts," Journal of Family and Economic Issues, Springer, vol. 31(2), pages 212-227, June.
  5. Dimitrios Christelis & Dimitris Georgarakos, 2008. "Investing at Home and Abroad: Different Costs, Different People?," CSEF Working Papers 188, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy, revised 10 Jan 2013.
  6. Nestor Gandelman, 2008. "Hogares encabezados por mujeres y propiedad de la vivienda en América Latina," Research Department Publications 3253, Inter-American Development Bank, Research Department.
  7. Miriam Marcén, 2012. "Labour and leisure costs of informal caregivers," Economics Bulletin, AccessEcon, vol. 32(1), pages 449-455.
  8. Elliott, William & Kim, Johnny S., 2013. "The role of identity-based motivation and solution-focus brief therapy in unifying accounts and financial education in school-related CDA programs," Children and Youth Services Review, Elsevier, vol. 35(3), pages 402-410.

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