Public Policies To Alter The Use Of Alternative Financial Services Among Low-Income households.

A substantial number of low-income individuals make use of services within the Alternative Financial Sector (AFS), particularly pay-day lenders and check cashing outlets. Pay-day lending has grown over the past 20 years, as has the use of Refund Anticipation Loans (RALs). Although the number of households without a checking account has fallen, currently about 12 million households do not have a checking account, and must rely on check-cashing services. The high cost of these services has led many observers to seek policies that would reduce the use of informal financial services among lower income households. This paper briefly reviews the reasons why individuals utilize AFS outlets, and then discusses the policy options that could affect these decisions.