Fringe Banking: Check-Cashing Outlets, Pawnshops, and the Poor

By John P. Caskey

Book Overview

"Cogently argued, fills an important gap in the literature, and is accessible to undergraduates." --Choice "Dismantles the mythology surrounding pawnshops and check-cashing outlets, and demonstrates that they are no longer on the fringe of our financial system but integral to it."--San Francisco Bay Guardian In today's world of electronic cash transfers, automated teller machines, and credit cards, the image of the musty, junk-laden pawnshop seems a relic of the past. But it is not. The 1980s witnessed a tremendous boom in pawnbroking. There are now more pawnshops thanever before in U.S. history, and they are found not only in large cities but in towns and suburbs throughout the nation. As John Caskey demonstrates in Fringe Banking, the increased public patronage of both pawnshops and commercial check-cashing outlets signals the growing number of American households now living on a cash-only basis, with no connection to any mainstream credit facilities or banking services. Fringe Banking is the first comprehensive study of pawnshops and check-cashing outlets, profiling their operations, customers, and recent growth from family-owned shops to such successful outlet chains as Cash American and ACE America's Cash Express. It explains why, despite interest rates and fees substantially higher than those of banks, their use has so dramatically increased. According to Caskey, declining family earnings, changing family structures, a growing immigrant population, and lack of household budgeting skills has greatly reduced the demand for bank deposit services among millions of Americans. In addition, banks responded to 1980s regulatory changes by increasing fees on deposit accounts with small balances and closing branches in many poor urban areas. These factors combined to leave many low- and moderate-income families without access to checking privileges, credit services, and bank loans. Pawnshops and check-cashing outlets provide such families with essential financial services thay cannot obtain elsewhere. Caskey notes that fringe banks, particularly check-cashing outlets, are also utilized by families who could participate in the formal banking system, but are willing to pay more for convenience and quick access to cash. Caskey argues that, contrary to their historical reputation as predators milking the poor and desperate, pawnshops and check-cashing outlets play a key financial role for disadvantaged groups. Citing the inconsistent and often unenforced state laws currently governing the industry, Fringe Banking challenges policy makers to design regulations that will allow fringe banks to remain profitable without exploiting the customers who depend on them.

• Format: Hardcover
• Language: English
• ISBN: 0871541955
• ISBN13: 9780871541956
• Release Date: August 1994
• Publisher: Russell Sage Foundation
• Length: 179 Pages
• Weight: 0.05 lbs.
• Dimensions: 9.0" x 0.9" x 6.0"

Customer Reviews

Good general information on the sector

This book offers a good analysis of the sector. My only issue with the book was that the data was a bit dated. I mistakenly thought the information was from 2006 but realized the analysis referenced facts from the mid to late 90s. But for a general reference on the space I thought it provided good background info.

Beyond the fringe

Tens of millions of Americans -- perhaps 30 million -- do not have a bank account (including credit unions). The number has been going up, absolutely and proportionally, since the late '70s This should, in the "cashless society," be an inconvenience. It is, but less so because of pawnshops and -- to a lesser extent -- check cashing businesses. In this 1994 study for the Russell Sage Foundation, short but meaty, economist John Caskey spends a good deal of his effort in exploding myths about pawnshops. Not all their customers come in because they have no place else to turn, although for the near-destitute and desperate, pawnbrokers will provide money when no one else will. The question is, would the poor be better off if the pawnshops were more strictly regulated. After all, they charge much more, if interest is calculated as a time-value percentage, than any other kind of lender, except maybe Louie the Leg. And the related CCOs (check cashers) charge much more for cashing a check than the (usually implicit) charge by a bank. On the whole, Caskey concludes, no. More regulations would drive pawnshops out of business, and since no one else would step in to provide lending accommodations for the unbanked, these people would have to turn to Louie. In many other countries there are low- or no-profit municipal pawnshops -- the Dorotheum in Vienna is over three centuries old -- but Caskey does not believe Americans would go for that. What they had gone for, and very obviously when he did his research in the early '90s, was pawnshops allowed to charge high interest rates. Surprisingly, the states that raised their limits were concentrated in the South and Mountain states, where there are now thousands of pawnshops. New York State had, in 1993, only a few dozen, about the same number as Hawaii with a population about 35 times smaller. But there are thousands in Texas. Although Caskey does not say so explicitly, he cites statistics in such as way as to leave the impression -- entirely correct -- that the explosion in the number of unbanked is correlated with the Reagan-Bush policies of destroying ordinary jobs and transferring wealth from the poor (who have little individually but substantial amounts in aggregate) to the rich. But he has to walk a fine line, because suggesting that some poor are that way because they are improvident would bring down the wrath of the do-gooding left. "I tread carefully in making these points," Caskey writes, "because they are sensitive." He concludes, however, that it is not poverty as such that keeps people (not all very poor) unbanked. Rather it is in large measure a tumultous income history. Periods of illness, joblessness or rootlessness cause payments to be missed, making people ineligible for cheaper (by the transaction) bank services -- whether cashing a paycheck or Social Security check or obtaining a small loan. He observes that of the aspiring poor (including many new immigrants), "the first financial a