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Note to the teacher:
This predatory lending or fringe banking activity uses a fictitious case study to exemplify the costs of using a check casher. Students compare two stories and use their basic math skills. Because predatory lending comes in many forms and often targets low-income communities where so many students reside, this activity is designed to educate students on how costly it is to cash their checks at check cashing stores.

This activity assumes that students have choices in their neighborhoods about where to do their banking. If students do not have a viable bank in their neighborhood, public information about banking access and rights can be found on the Federal Deposit Insurance Corporation’s Community Reinvestment Act Web site.

 
Tools for Teachers

Activity: Check Cashers versus Banks

Author unknown

Start the class by asking your students the following:

  • How many of you receive a paycheck?
  • How do you cash your check, or use your check to make payments or to save?

Here is a fictional story about two women who work at the same job but cash their checks in two different places. See if you can figure out what results come from cashing their checks in two different places.

Juanita and Alice both work at Mr. One-Stop Shopping. They both make $280 a week.

Juanita has a bank account at Hercules Bank, so every week the accounting department at Mr. One-Stop Shopping deposits her paycheck directly into the bank. Then when she wants to buy something she either takes money out at an ATM or writes a check. Because Juanita has direct deposit and keeps a small minimum balance, Hercules Bank gives her the bank account for free.

Alice does not have a bank account. She feels better when she is given her paycheck and then sees the actual money. So every week when it is time to get paid she goes to the office in Mr. One-Stop Shopping and picks up her check. Then Alice goes to Slick’s Fast Cash to cash it. Each time she cashes her check, Slick’s Fast Cash charges her 10 percent of the value of the check.

After cashing her check at Slick’s, Alice carefully puts all of her money in her wallet and walks home. As soon as she gets home, she puts the cash in different envelopes marked “gas,” “food,” and “rent.” Then she hides the envelopes under the mattress. When she wants to buy something she simply takes some money from the right envelope and goes out to make her purchase. When she needs to pay a bill, she takes the cash from the correct envelope and brings it back to Slick’s, where’s she charged $3.50 for each check.

Questions:

1. What does Juanita do when she gets paid? What about Alice?

2. How will Juanita pay bills during the week? What about Alice?

3. How much money does Juanita pay to have a bank account?

4. What are the pros and cons of having a bank account?

5. What are the pros and cons of cashing a paycheck at Slick’s Fast Cash?

6. How much money does Alice spend to have her check cashed each week and to pay her five other monthly bills?

7. If Alice cashes her check every week and pays her five monthly bills at Slick’s, how much money will she spend at Slick’s in a month? A year?

8. What could Juanita do with the amount of money that Alice spends each week to get her paycheck cashed?

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