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Fringe Banking

Check-Cashing Outlets, Pawnshops, and the Poor

John P. Caskey

Publication Year: 1994

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 than ever 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.

Published by: Russell Sage Foundation

Title Page, Copyright, Dedication

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Contents

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pp. vii-

List of Tables and Figures

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pp. ix-x

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Preface and Acknowledgments

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pp. xi-xiv

Many people have questioned the genesis of my interest in pawnshops and check-cashing outlets, since my major professional focus has been on banks and monetary economics. Several years ago, my curiosity about pawnshops...

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Why Study Fringe Banks?

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pp. 1-4

The United States financial system is undergoing a transformation. Many of the changes-the erosion of regulatory barriers between banks and securities firms or the rise in interstate banking- have been widely...

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1. Four Themes

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pp. 5-11

The following chapters investigate in depth how pawnshops and CCOs function, who uses these institutions, and for what reasons. They also discuss the factors behind the recent rapid growth in fringe banking and examine the case for regulating...

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2. A Brief History of Pawnbroking and Commercial Check Cashing

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pp. 12-35

A pawnshop loan is a relatively simple transaction: the broker makes a fixed term loan to a consumer who leaves collateral in the possession of the broker. If the customer repays the loan and all required fees, the broker returns the collateral...

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3. Contemporary Fringe Banking

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pp. 36-67

From 1930 through the mid-1970s, the pawnbroking industry contracted. Over this same period, the check-cashing industry grew, but remained largely confined to Chicago, New York City, and a small number of other urban...

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4. Who Uses Fringe Banks and Why?

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pp. 68-83

Borrowing from a pawnshop is much more expensive than borrowing from a bank, finance company, or drawing on the line of credit provided with a bank credit card. It is also generally less convenient because...

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5. Explaining the Boom in Fringe Banking

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pp. 84-110

The boom in pawnshops and check-cashing outlets began in the late 1970s and gathered momentum in the 1980s. I believe that one of the more important factors contributing to this growth was a marked increase...

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6. Regulating Fringe Banks

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pp. 111-127

Pawnshop loans and CCO payment services are far more expensive than are credit or payment services from mainstream financial institutions. Yet millions of low- and moderate-income households rely on these...

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7. Policies To Make Deposit Accounts More Accessible

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pp. 128-138

Recognizing that a significant and growing number of households depend on pawnshops and check-cashing outlets for basic financial services, the previous chapter proposed some regulatory measures to protect fringe banking customers...

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Concluding Comments

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pp. 139-150

Over the 1980s, the number of pawnshops and check-cashing outlets nationwide more than doubled. In the first section of this chapter, I argue that this growth is likely to continue into the 1990s, albeit at a slower...

Bibliography

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pp. 151-156

Index

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pp. 157-165


E-ISBN-13: 9781610441131
Print-ISBN-13: 9780871541956
Print-ISBN-10: 0871541955

Page Count: 192
Illustrations: 13 tables, 8 figures
Publication Year: 1994

Research Areas

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Subject Headings

  • Poor -- United States -- Finance, Personal.
  • Check cashing services -- United States.
  • Pawnbroking -- United States.
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