Government: Cheque-cashing fees not illegal

Minister for Financial Services Tara Rivers has confirmed that the current practice of some retail banks charging to cash cheques is within the law.

Leader of the Opposition Arden McLean claimed during a debate of the Bills of Exchange Law in April that banks had no authority to charge a fee because the law indicated they had to pay the face value of the cheque to the payee.

In Finance Committee on Friday, Rivers said she had sought the advice of the Cayman Islands Monetary Authority and Attorney General Samuel Bulgin on the issue.

Rivers said McLean was correctly stating under the law that a bank must pay the amount of the cheque. “However, the law is silent on whether the bank can charge fees for cashing a cheque, and on that basis a bank is not prohibited under the law as it currently stands from charging services related to cheque cashing,” she said. “It is a commercial decision that is taken by the individual banks.”

The practice of charging non-customers for cashing cheques is not unique to the Cayman Islands, the minister added. She cited the US, where no federal law or regulation requires national banks to cash cheques for non-customers. Most banks have policies that allow check-cashing services only for people who hold accounts with them, in order to protect both themselves and their customers from forgeries.

According to the latest fee schedule, released this month, retail banks charge up to $3 for cheque cashing and up to $5 for local cheque deposits, depending on the bank and the type of account. However, several banks do not charge a fee at all.

Local bank drafts cost between $5 and $10, depending on the bank. Drafts are prepaid and guaranteed by the bank, whereas cheques are created by an account holder and drawn against a bank account. Unlike cheques, drafts cannot bounce and are faster to process.

McLean suggested that banking fees should be regulated by CIMA or another entity to determine when and who can be charged a fee.

Opposition MLA Kenneth Bryan said the practice was “hurting the small, common man” such as single mothers picking up child support cheques at the courthouse.

Rivers said such regulation could amount to price controls. While government was “concerned about the issues being expressed”, any change would require a wider discussion.

Opposition members suggested government should at the very least find a solution for government cheque payments, for example by negotiating better rates.