LAS VEGAS (AP) — Banks are rolling out services that allow their customers to cash a check before it clears — for a fee, of course.
Traditional banks have avoided offering the service, which is usually aimed at people with low incomes or without bank accounts, but now they want to get in on a business that has come to be dominated by local check-cashing stores.
U.S. banks and the consultants that serve them believe check cashing services can be marketed more broadly than they currently are, and that they have the potential to earn banks millions in additional fee income. At least two large banks have offered or are in the process of offering such "instant funds availability" services.
Bank consultants are hopeful the "want it now" attitude among customers will result in wide adoption of the service beyond the poor, who more often need access to money from a check more urgently.
Consumer advocates have expressed reservations. While having instant access to funds from a check deposit could be helpful, it would be yet another fee for everyday banking services and would still most likely be paid by low-income customers.
There are also concerns that banks may not disclose to customers who express interest in the service that the funds from their deposited checks will be available fairly soon anyhow if they just wait.
Under current Federal law, the first $200 of a customer's deposit must be made available the next business day and another $200 the day after that. If a customer were to deposit $500, nearly all the funds would be available within 48 hours.
"We like to see banks reaching out to low- and moderate-income customers, but this is basically the banks getting into check-cashing," said Lauren Saunders with the National Consumer Law Center.
Cincinnati, Ohio-based Fifth Third Bank recently launched a low-fee checking account called Express Banking which allows customers to get immediate access to deposits as an additional service (the account does not allow the customer to overdraft and does not have monthly maintenance fees). The fee varies depending on how active the customer is with Fifth Third, but can be as from 1 percent to 4 percent of a check.
For a $500 check, Fifth Third's 1 percent fee would be $5, which is more than the $3 fee Wal-Mart charges for check-cashing services in their stores. However Wal-Mart does not offer check-cashing services for personal checks.
When Fifth Third started offering check-cashing services in 2011, the bank started noticing it was getting repeat customers who did not have bank accounts looking to cash checks, said Mark Erhardt, director of retail product management at Fifth Third. The bank decided to develop Express Banking to attract those customers, he said.
"It builds a relationship that places these consumers back into the banking system on their terms," he said.
Fifth Third says the average check cashed is between $200 and $400. The bank does tell customers when funds from deposited checks would be available without any intervention at the same time they offer the check-cashing service.
Fiserv, a financial technology and consulting company, has been selling a service called Immediate Funds to banks. The company says one large bank, which it declined to identify, is in the process of starting to offer the service. At a recent conference in Las Vegas, a Fiserv representative said that two other large banks have made commitments to use Fiserv to offer the service.
Banks are expected to increasingly offer check-cashing services routinely in hopes of attracting an impulse buy. A customer making a check deposit using their banking app could be offered the option, or see it every time they make a deposit at the ATM.
"People want what they want, when they want it," said Kevin Gregoire, group president of the financial institutions group at Fiserv, in a response to written questions about the product.
Fifth Third offers the check cashing service via its mobile app, but not at ATMs, Erhardt said.
In a survey that Fiserv conducted, seven out of 10 respondents said they would use check cashing services by a bank at least once a month.
While check usage has been on the decline for years, there's still money to be made in check cashing. The costs to process checks are falling since the advent of remote check deposit services on smartphone apps and ATMs, and checks are still popular. Banks processed 5.4 billion checks in 2015, with an average value of $1,487, according to the Federal Reserve.
Financial Service Centers of America, the trade organization that represents check cashers as well as payday lenders, say the industry operates 13,000 stores nationwide and sells $106 billion in financial products to roughly 30 million customers.
This story has been corrected to fix the name of the National Consumer Law Center. An earlier version called it the National Consumer Law Coalition.