Study: Illinois could save state, check recipients, money by modernizing payment methods

With approximately seven percent of adult Illinoisans lacking a bank account, senior fellow Erik Randolph says those people who get a check from the state will have to pay to have it cashed. (Photo courtesy: Flickr)

By Illinois Radio Network

SPRINGFIELD – When the state of Illinois cuts a check, it’s remitting payment in one of the most expensive and least secure methods possible. Adopting new ways to pay, according to a report from the nonpartisan Illinois Policy Institute, could not only protect against fraud but save people with no relationship with a bank money on check cashing fees.

The state pays people and businesses in several ways for several purposes, including direct deposit for child support disbursements, EBT cards for food assistance, even cash for lottery winnings. In 2018, state agencies paid out more than $1.3 billion in paper checks, the report said. With one in five Illinoisans lacking any type of bank account, this means extra costs and security issues just to be paid by the state.

“They receive a check and now what do they do? They don’t have a bank account,” said Erik Randolph, senior fellow at the Institute. “It costs more money for them to turn it into cash which they can spend but now there’s the risk that they can lose the cash or someone could rob them.”

While the report doesn’t necessarily advocate for complete removal of state-originated checking, they say there’s simply no guidance from the state legislature as to when other methods, debit cards for instance, would be appropriate.

“Debit cards cost the recipient less money to access the funds, are more secure than paper checks or cash, and cost state government less money to administer,” the report said.

Randolph added that many institutions will partner with a state to share any benefits they may receive from the cards.

“They could use either direct deposit or debit cards, for example, and cut back on some of their costs,” he said.

Gov. J.B. Pritzker signed legislation in August aimed at protecting the unbanked from predatory lending practices. The law allows Illinois Comptroller Susana Mendoza to partner with banks and others to certify products that would help residents in attaining the appropriate banking relationships.

“As the research shows, more than 90 percent of the state payments you tallied are now made in methods other than paper checks. That is a result of market forces and this office’ policies to encourage technologies more efficient than paper checks,” said spokesman Abdon Pallasch. “We expect this trend to continue.”

The unbanked do have options in cashing checks beyond a payday loan store. Experian recommends the unbanked cash checks at the bank who issued it. They can also cash checks for low fees at major grocery stores but they often have limits on the amount that can be cashed.

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