When the state of Illinois cuts a check, its 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 who don't have a bank account 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 and cash for lottery winnings. In 2018, state agencies paid out more than $1.3 billion in paper checks, according to the report. With one in five Illinoisans lacking any type of bank account, this means extra costs and security issues.
“They receive a check and now what do they do? They don’t have a bank account,” said Erik Randolph, a 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 advocate for getting rid of state checks, it noted that there was no guidance from the state legislature about when other methods, such as 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 people without bank accounts from predatory lending practices. The law allows Illinois Comptroller Susana Mendoza to partner with banks and others to certify products that would help residents to attain 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," Comptroller spokesman Abdon Pallasch said. "We expect this trend to continue."
People without banks do have options for cashing checks beyond a payday loan store. Experian recommends cashing checks at the bank that issued it. People can also cash checks for low fees at major grocery stores, but they often have limits on the amount that can be cashed.