How Check-Cashing Services Impact Low-Income Americans - Research Paper Example

 How Check-Cashing Services Impact Low-Income Americans ABSTRACT Approximately 14% of Americans live in poverty. This piece will seek to demonstrate how predatory check-cashing services—such as currency exchanges—are slowly bankrupting the checking and savings of ordinary Americans. With 49 million Americans living at least 100% below the federal poverty line, it is a travesty that check-cashing services are preying upon the poor. This piece will examine several elements of check-cashing history, laws, targets, the practice’s underlying ethical theories, and its element of inherent social responsibility or lack thereof. I. The History of Check-Cashing Services A. When Did These Services Begin in the U.S.? Check-cashing services became available to people as long as the United States has been operating—although it was just under a different name: bartering. However, check-cashing services became more widely-commercialized in the 1980s and 1990s. According to Caskey (1996), “[W]hen a San Francisco-based bank began to offer commercial check-cashing services in the Los Angeles area, it was criticized as ‘ripping off’ the poor” (pp. 142). B. How Did They Begin? These check-cashing services often started out as small, mom-and-pop operations that sold antiques, jewelry, televisions, and other odds-and-ends items and knick-knacks. Pretty soon, check-cashing services included everything from getting a check cashed (without having to have a bank account)—to other financial services, including getting cashier’s checks and money orders. A. Who Started the Service? These services were started by people who had a little bit to invest in their business. Usually these service providers started out small, and, as their wealth grew, they could either expand their pawnshops or check-cashing services—which didn’t require a checking account at the bank, which was a novelty for poor people who traditionally didn’t have financial services available to them due to their socioeconomically-disadvantaged status. II. How Did Check-Cashing Services Become Popular? Check-cashing services became popular when people realized that they needed some kind of banking services in order to cash their checks for pennies on the dollar. What they didn’t realize was that these currency exchanges were often charging exorbitant fees for providing said services. III. What Groups Were Targeted A. How Were These Groups Selected? These groups were most likely selected due to their low socioeconomic status. People who are living in poverty rarely have less cash flow, and less capital to be able to put towards financial services—such as, say, having a checking and/or savings account at the bank. Thus, this can drive people into even more poverty because they are not saving money. Since they are not saving money, unfortunately this is causing them much distress—having to usually live paycheck to paycheck. Many of these people are struggling economically. With many people out of work and the national unemployment rate at 9%, several people do not have jobs and are just living on their earnings from part-time jobs and unemployment checks, not to mention welfare checks from the government. A large percentage of the American population is now living on welfare. These currency exchanges (or ‘check-cashing’ services) just prey upon the fact that the poor don’t have access to good financial services because banks usually don’t cash checks for people who don’t have accounts with their banks. B. What Do Critics Say About Targeting These Groups? Critics would generally agree that targeting these low-income, socioeconomically-disadvantaged groups would be morally and ethically wrong—speaking from the standpoint of a consumer. However, not much has been done to regulate such currency exchanges and other forms of check-cashing operations—including pawnshops. C. What Do Proponents Say About Targeting These Groups? Proponents of the check-cashing method would probably point out that people who have no financial services available to them—due to the fact that they don’t have bank accounts of checking or savings—ultimately need somewhere where they can cash their paychecks, unemployment checks, or welfare checks. Ultimately, much of the money—a good but small percentage—goes to the currency exchange where the person is cashing the check so that their checks will be converted into cash immediately. Also, another feature that is not thought about by banks is that, usually banks don’t have to worry about checks being false since there are certain policies in place that prevent banks from honoring bad checks or false checks. Not only that, but if one tries to cash a check that is false at a bank, that could be legal grounds for a serious action to be brought against the person in court. IV. Government Regulation A. What Government Group Regulates Check-Cashing Services? The government group that regulates check-cashing services is the Banking Department in most states—which basically oversees all the check cashers at the state level. At the federal level, the Consumer Federation of America analyzes how check-cashing businesses are operating in order to ensure that the highest-level quality services are given. B. How Did the Government Get Involved? The government got involved because there were a lot of small-time check-to-cash business operators who were maintaining these businesses and reaping a profit off the backs of the poor. This is when the CFA stepped in and said enough. Since then, this agency has been monitoring the movements of check-cashing operations in order to ensure that they comply with local, state, and federal laws. C. What Laws Are in Place to Regulate the Abuse of Consumers? The laws in place to help regulate the potential abuse of consumers includes the FOIA (the Freedom of Information Act), as well as the establishment of the FTC (the Federal Trade Commission). If it is suspected that any business is operating a scam or a scheme outside of the guidelines of FTC rules, it is important that such predatory businesses be targeted for fraud. These complaints should be reported to a website called . This will then prompt the user to ask how the fraud was committed, if there was an exchange of money involved, if there were any communications involved (such as email, a mail scam, etc.). If there is a scam involving mail that could be a federal offense, as tampering with mail or solicitation (in some local areas) can be violating local laws and codes. D. What Laws Are in Place to Protect Businesses? The laws in place to protect businesses were listed above in detail. V. Ethical Issues in the Check-Cashing Business A. Utilitarianism 1. Identification of the Theory Utilitarianism is generally regarded as “the greatest good for the greatest number.” Of course, utilitarianism does not always end up being the best deal out fo the bunch. According to Brandt (1992), “Utilitarianism is a theory about what people morally ought to do and, hence, is at least indirectly about which laws and institutions (since people can affect them) are morally acceptable” (pp. 370). In other words, the better of two evils (or more than two) has to be chosen. Thus, one may have to make a bad decision, but in order to do the best, one has to, in the end, make a choice. And so it goes, usually the choice that is made depends upon the utilitarian value, as it were—and that one must choose the best choice, and then afterwards make the best of a bad situation. 2. Definition of the Theory The definition of utilitarianism is to make the best possible decision when all the decisions at hand are not necessarily going to benefit everybody, or necessarily anybody in a positive way. However, the best decision is one that takes into account all of the factors and does the least harm to anyone. The greatest good for the good of all concerned, as it were, is not necessarily a fool-proof, surefire way to make decisions, either. Some decisions are bad but they must be made anyway, because life or death could depend upon it. 3. How The Theory Works Utilitarianism usually applies to situations that are very desperate. For example, if one was stranded on a desert island, but one needed to choose between having to hunt for food or use energy to build a shelter—it would depend on what the greatest good for the good of all would indeed be. Let’s imagine there were two or three other people along on the voyage. Perhaps one person might volunteer to hunt for food while the other two could build a shelter and then rest. Or one person could rest and the other could build a shelter while the third person hunted—and then they could change jobs in shifts. This is just one example out of several possibilities of how the theory of utilitarianism could work. 4. How to Apply This Theory to the Issue of Check-Cashing How one can apply the utilitarian theory to the issue of check-cashing is simple. Obviously, not all poor people can afford to have a checking account or even a savings account at a bank. But, on the other hand, if they need to make checks into cash, they must have a check-cashing service available to them, or they will not be able to have access to currency, which is a very basic need in our society. Without paper money, one cannot virtually do anything. That is why it is so important to be good financial stewards of our money and to ensure that we are taking care of the gifts that we have been given. Otherwise, utilitarianism wouldn’t mean a hill of beans if we couldn’t take the good or positive aspects from a situation and apply them to real life like this. So, in essence, check-cashing is positive in that it provides a service that no other institutions (like banks) are willing to do or even necessarily be associated with in the long run. 5. According To the Theory, Is Check-Cashing Ethical or Not? According to the theory, check-cashing would be ethical because currency exchanges are providing a service which banks cannot, in effect, provide to the poor because they just don’t have the legal wherewithal, in many cases, to do so. Basically, in this sense, banks are discriminating against the poor, which is wrong; on the other hand, this is through no fault of utilitarianism. So, ultimately the utilitarian greatest good for the good of all is to offer this service to people who have no other good alternative. B. Kant 1. Identification of the Theory Kant’s moralism and ethical theory was based on ethics by induction. According to Kant (2008), he does not “need any far-reaching penetration to discern what…to do in order that [one’s] will be morally good”; it is intrinsic (pp. 21). In other words, Kant was saying that to know how to do good and to actually do it are not too far apart in scope—meaning that, as humans, we naturally know what is right and what is wrong by trial and error. If something doesn’t feel like it’s right, it’s probably not an ethically sound decision. However, people must be taught what isn’t right in the first place in order so they don’t commit grievous offenses. 2. Definition of the Theory Kantian theory basically states that one is only as morally sound as one is ethically sound. Thus, morals and ethics, for Kant, go hand in hand. One can’t be ethical without having moral basis, and on the other hand, one is not moral without a solid code of ethics in place. Even people who are immoral have codes of ethics—for example, thieves have a code of ethics. So do black-hat hackers. Whatever the case, Kantian theory basically states that one must have a moral code, and that this moral code or conscience stays with us throughout our lives. 3. How The Theory Works How the theory works is, simply, if one things something (like an action) is wrong, then one should abide by that little voice inside telling us not to do that ‘something,’ and move on. However, sins of omission are also as important as sins of commission. So, if we are supposed to do something but do not do it, we are also violating a moral code of ethics. 4. How to Apply This Theory to the Issue of Check-Cashing Kantian theory is most easily applied to this situation of check-cashing. The poor should not use check-cashing if at all possible. The check-cashing cashier should not extract extraneous fees from checks cashed. Check-cashing establishments should not prey on their customers or offer them predatory loans such as in the loans given out by pawnshops. So, as can be seen, much of the activity that is generated by these currency exchanges is not only illegal, but is dangerous, too. Most transactions needing to be made in cash can be fraudulent or have some other type of illegal activity going on around them so there is not an electronic footprint—since cash is not traceable. 5. According To the Theory, Is Check-Cashing Ethical or Not? According to Kant, of course check-cashing would be unethical. He would see it as society preying on poor peoples’ hard-earned money, or, in some cases, ‘free’ money. Either way, he would not approve of currency exchanges, which in olden days used to be referred to as ‘houses of exchange.’ In Mexico these are called casas de cambio. They don’t have a very good reputation in Mexico, either—which is telling. Plus, they charge exorbitant fees there as well. C. Legal Posivitism 1. Identification of the Theory Legal positivism is the separation of law from morality. Now, one might ask, how can the law be separate from morality? That doesn’t make sense! Well, it might make sense if we examine a couple of things. First of all, are laws all created equal? The answer would be a resounding, “No!” Segregation was legal for years and years, but that didn’t make it—or slavery, or the oppression of women, gays, and minorities—morally sound or just or right or ethical, no indeedy. So, legal positivism states that morals are actually different from the law, and that they can be separate, which is indeed very possible. Sometimes it can even be probable. 2. Definition of the Theory The definition of the theory of legal positivism is that, in essence, the law can be separate from morals—very similar to how religious and secular society are separated in the United States by the separation of church and state, respectively. Legal positivism asserts that something can be illegal but not necessarily morally wrong—such as, say, a woman who is feeding her baby, which goes against a local ordinance in her town that she can’t breastfeed in public in the mall. From an ethical standpoint, the baby needs milk, and this has nothing to do with the ordinance outlawing what is obviously a natural human need which needs to be fulfilled. That is like outlawing people being able to go to the bathroom—it’s morally reprehensible to either take away or restrict nourishment and also to restrict someone from relieving themselves if necessary. These are basic human rights. On the other hand, it is entirely possible for someone to do something legal but it is morally wrong. Such as, for example, let’s say someone buys alcohol (legally)—but then, they drink ten cases of wine in a row and get drunk, a moral failing. That is how Cartesian dualism basically works, which will be explained in the next section. 3. How The Theory Works Cartesian dualism works in legal positivism as two forces, like two bookends. On one end, one has the fact that check-cashing is not a ‘smart’ financial decision to make. On the other hand, check-cashing is a smart choice for people who don’t really have the financial wherewithal to help themselves much, and having a checking or savings account would either be too difficult for them to set up, or, for whatever reason, they don’t like or won’t go into or distrust banks. So, in essence, there is a pro, but there is also a con side which is true for all of this—and interestingly enough they balance each other out. 4. How to Apply This Theory to the Issue of Check-Cashing Legal positivism separates the evil from the evildoer, the wheat from the chaff. So, in this sense, we have on the one side, the check-cashing servicer, which is legally provided. On the other hand, we have predatory lending, which is also practiced by some (but not all) currency exchanges. It is not necessarily morally right, but it is legal to give out payday loans. Therefore, something must be changed within the law to help stop currency exchanges from preying upon the desperation of poor people. 5. According To the Theory, Is Check-Cashing Ethical or Not? According to this theory of legal positivism, check-cashing is definitely ethical even though it has some legal precedents underpinning the premise of check-cashing which are not exactly the most ethical precedents in the scope of lending laws. Fair lending laws are supposed to protect consumers from predatory lending, but there are ways these organizations try (and can actually accomplish) the flouting of the law. D. Egoism 1. Identification of the Theory Egoism is kind of like a disease. According to Westerink (2009), “Although egoism is thus neither good nor bad, it remains for Freud the basis of morality and the sense of guilt. The history of the origin of the term narcissism is illustrative here” (pp. 150). Egoism ultimately has to do with guilt, because one feels bad when one is so selfish. Egoism is narcissism in a nutshell. 2. Definition of the Theory The definition of the theory of egoism is that it is basically self-centeredness at its best. Egoism is an intellectual poison, and everyone who has ever thought that they were overly smart, famous, good-looking, or intelligent has experienced (or suffered from) at least some touch of egoism in their lives—either by themselves or having witnessed it from someone they know. 3. How The Theory Works Egoism basically works because the mind feeds off of the information it receives. Thus, if all the messages that one is receiving reinforces false notions of delusions of grandeur, of course all of the reactions that are going to follow will be egotistical in nature. And that, in a nutshell, is how egoism works. 4. How to Apply This Theory to the Issue of Check-Cashing Egoism on the part of the service user means that he or she thinks that he or she might be able to get away with passing on a bad check, or perhaps the person is going to take the money cashed from the check and spend it on alcohol or illegal drugs. Egoism is a big part of why that person is compelled to do either thing. On the part of the lender, egoism is what drives the lender to want to lust after the ‘poor man’s lamb,’ here, so to speak. The poor person doesn’t have much, but what little he has, the lender wants to snatch from him in his moment of quiet desperation. So, badly needing a loan, predatory lenders, pawnshops, check-cashing services, and currency exchanges take advantage of that need exhibited by these people. 5. According To the Theory, Is Check-Cashing Ethical or Not? According to egoistic theory, check-cashing is ethical in the sense that it fulfills the ego of both parties—the lender and the service user. However, it is unethical in the sense that egoism is a vice not to be encouraged, and in this case, egoism does not serve as a beneficial purpose in advancing either party in their social status in a moral fashion. E. Golden Rule 1. Identification of the Theory The Golden Rule states one must treat the other person like one wishes to be treated. According to Morton (2004), “Most moral systems acknowledge this fact in that they have principles like the golden rule ‘Do unto others as you would have them do unto you.’ So one might try to work out an ethical theory that began with such obvious principles…” (pp. 90). 2. Definition of the Theory The Golden Rule simply states that one should not do harm unto another person. It states that one should do unto the other person as one would have something be done unto them. Therefore, this essentially means that no one should take advantage of anyone. This is especially difficult for predatory lenders to understand, who just care about making money off of the backs of poor, desperate people, who likely cannot pay back big loans even within the shortest amount of time as in weeks. 3. How The Theory Works The Golden Rule theory works, but only because people adhere to it. If people weren’t nice to each other unconditionally, the Rule would be nothing but words on a page. If people sincerely care about each others’ well-being, the thinking goes that they will most likely not be interested in trying to harm the person or see him or her come to harm. Thus, lenders and service users both can watch out for each other and help each other out, but they must mutually agree to be watchful. 4. How to Apply This Theory to the Issue of Check-Cashing The Golden Rule also applies to predatory lenders, as well as check-cashing service users. Lenders should not try to prey upon poor customers whom they know will not be able to repay a loan and thus come to repossess their car, house, or other belongings. On the same note, people who are utilizing check-cashing services should not try to illegally or otherwise manipulate the check-cashing service or pawnshop in a manner whereby they will benefit financially from committing a fraudulent or otherwise shady transaction. Thus, both lender and service user have to agree to treat each other as they would like to be treated—fairly. 5. According To the Theory, Is Check-Cashing Ethical or Not? According to the Golden Rule theory, check-cashing would be illegal because it is against the fact that predatory lenders should not take advantage of people, just as they themselves, the lenders, would not want to be taken advantage of at whatever point they were at in their lives. So, in this way, the Golden Rule levels out the playing field, and no one should be charged for the checks they are converting into cash simply due to the fact that they are socioeconomically disadvantaged, because that is morally reprehensible and wrong on so many levels. VI. Are Check-Cashing Services Socially Responsible? 
 A. Define Social Responsibility Social responsibility basically means that a person is socially responsible for his or her actions, no matter what the case. For example, screaming aloud in public is not considered having good social responsibility because, well—that’s just unacceptable behavior. Having social responsibility means that one has societal obligations to fulfill, and everyone plays such roles—mother, father, daughter, son, sister, brother, etc. B. Explain If Check-Cashing Is Socially Responsible Check-cashing is not necessarily socially responsible as a format of dispensing money to the public who are from poorer sectors of the population who don’t necessarily have bank accounts into which they can deposit their money and thus make interest on their capital investments. Check-cashing is not socially responsible because the only place the person can put the money is under the mattress—not in a dividend earning 8% yearly, for example. C. Suggestions to Make Check-Cashing Better or To Make It More Socially Responsible Suggestions to make check-cashing better would be to charge less fees or keep the fees for cashing checks small—a minimal portion of the check or money order or cashier’s check would go to covering the cost of keeping the currency exchange open. In order to make such a venture more socially responsible, the currency exchanges could offer to open up accounts—similar to banks, but not quite. They could be like safes that are kept in banks, but a little bit different—‘checking accounts for the poor.’ This service would have no fees attached. This is a perfect alternative for someone who does not usually have alternatives. VII. Conclusion Obviously, check-cashing services are not for everyone. Here, the history of check-cashing services, how they got started, who these services target, how they are regulated, the theories behind check-cashing, and the discussion of whether these services are socially responsible or not were all huge issues that were tackled in this piece. It is hoped that this kind of service will not hinder the poor, but help them to eventually build credit and have some kind of account similar to a bank account, but without the charges of monthly fees that banks charge and which make them so unattainable for people with low incomes. WORKS CITED Brandt, R.B. (1992). Morality, utilitarianism, and rights. UK: Cambridge University Press. Caskey, J.P. (1996). Fringe banking: check-cashing outlets, pawnshops, and the poor. US: Russell Sage Foundation. Kant, I. (2008). Fundamental principles of the metaphysics of morals. US: Wilder Publications. Morton, A. (2004). Philosophy in practice: an introduction to the main questions. US: Wiley-Blackwell. Westerink, H. (2009). A dark trace: Sigmund Freud on the sense of guilt. The Netherlands: Leuven University Press. ANNOTATED BIBLIOGRAPHY Brandt, R.B. (1992). Morality, utilitarianism, and rights. UK: Cambridge University Press. This is a series of essays spanning a period of 30 years, delving into the psychology of morals, deftly discerning what it means to be moral and what value one places on certain tenets, such that one can properly identify immorality. Caskey, J.P. (1996). Fringe banking: check-cashing outlets, pawnshops, and the poor. US: Russell Sage Foundation. This source focuses upon segmentation in the banking industry, how operating outside the banking industry can be costly for the poor, and how pawnshops and check-cashing outlets often function. This gives detailed insight into the relationship between the socioeconomically disadvantaged and credit status. Kant, I. (2008). Fundamental principles of the metaphysics of morals. US: Wilder Publications. This source examines—in-depth—the underpinnings of Immanuel Kant’s ethical and moral philosophy. Morton, A. (2004). Philosophy in practice: an introduction to the main questions. US: Wiley-Blackwell. This source delves into exercises which regards philosophy more as an active pursuit rather than a bunch of tomes of platitudes to memorize. For, philosophy is not just a material subject but an art which should be practiced on a daily basis. Westerink, H. (2009). A dark trace: Sigmund Freud on the sense of guilt. The Netherlands: Leuven University Press. The author of this source follows Freudian psychology through the realms of guilt within individuals, based upon the Oedipus complex. This book primarily focuses on the roots of where guilty feelings come from and how they are best resolved. 
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