Nearly a year ago, Congress authorized the first $ 1,200 stimulus checks to help Americans cope with the unprecedented coronavirus pandemic.
Most of those payments, 74%, were sent by direct deposit to bank accounts. However, about 22% of Americans received payments by paper check.
People spent roughly $ 66.6 million in fees to cash those checks through retailers or check cashers, according to a recent report by the nonprofit Financial Health Network and published by the Brookings Institution.
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With the next $ 1,400 checks ready to go, more Americans can receive them directly through their bank now that the IRS has more accounts on file.
Still, many individuals and families are likely to turn to check cashers to access money sent via paper checks and, as a result, may incur fees they would not have otherwise paid, according to Aaron Klein, lead researcher for the studies. cheap in Brookings.
Additionally, the $ 1,400 will be liable for certain debts. Consequently, people could turn to check cashers in an attempt to prevent money from being diverted from their bank accounts.
Check casher fees are often lower than overdraft fees, which can provide another incentive for people to turn to this method to access stimulus money, Klein said. Also, the processing time is usually faster.
“Our payment system is slow,” Klein said. “Time is money.
“If you run out of money and receive a paper check on Friday, how are you going to feed your family on Sunday?”
How people used check cashers
More than 3 million of the first $ 1,200 payments authorized by the CARES Act were collected through check cashers, Financial Health Network found.
Consumers tend to use these services because they don’t have a bank account or because they want to bypass their bank to avoid fees or access money faster, according to Dan Murphy, policy manager for the Financial Health Network.
Americans may also have been avoiding garnishment for unpaid debts, he said.
Of those who received the first stimulus payment by paper check, 6% indicated that they accessed the money through a retail or convenience store, according to the research. Meanwhile, 3% said they used a check casher.
The fees people pay to use these check cashing services vary. A retail store like Walmart charges $ 8 for checks worth more than $ 1,000.
Check casher fees vary by state. A single person may have paid up to $ 60 to access a $ 1,200 stimulus check through a check casher, while a married couple with three children received $ 3,900 ($ 2,400 for the couple plus $ 500 per child ) could have paid up to $ 195, according to the report.
Based on an average paper check of $ 1,582.74, the report estimates that Americans who used check cashers paid a total of $ 66.6 million in fees.
Consumers who do not have a bank account or who want to avoid bank fees can consider depositing their stimulus payments on prepaid debit cards, which generally have lower fees, Murphy said.
Alternatively, a BankOn-certified bank account, which can be opened online, has no overdrafts and low fees, he said.
‘Direct deposit is not instant’
The second stimulus checks of $ 600 were issued much faster than the first payments of $ 1,200.
Still, those second payments were sent on December 29, but generally did not reach people’s bank accounts until January 4, six days later, the report notes.
As a result, people who needed help paying rent or other bills due Jan. 1 were out of luck, Klein said.
The delay is a sign that the United States has more work to do to improve its ability to deliver direct payments quickly, he said.
In Singapore, for example, the government can get money to people in an hour, Klein said. Meanwhile, Amazon can deliver anything in the world to your doorstep in 48 hours, he said.
“I think this bill paid too much attention to who should be eligible for stimulus payments and too little attention was paid to how to get them there,” Klein said. “Direct deposit is not instant.”