Low-wage workers are often one broken-down car, one injury or one unexpected expense away from disaster. But some large employers and big banks are making the financial lives of these workers even more precarious by charging them fees to access their pay. Sold as a convenience for employees and a money-saver for employers, payroll cards are unfairly eating into workers' wages. With the incentives of major banks and employers aligned, workers need federal and state regulators to step in and end the gouging.
Payroll cards are like debit cards and can be used to receive cash at ATM machines or to make purchases. Typically, lower-wage hourly workers are the ones who receive their pay this way, with Taco Bell and Walmart among the dozens of large employers that offer them, according to an investigation by the New York Times. Nearly 4 million households have someone paid through these prepaid cards, according to a 2011 survey by the Federal Deposit Insurance Corp. Employers like them because they can save thousands of dollars a year over the cost of producing paper paychecks.
The cards offer convenience, and for some employees without a bank account, they can be cheaper to use than check-cashing services. But the cards are also another way to extract money from vulnerable workers. Fees are imposed for virtually every transaction, including making a cash withdrawal, making a purchase or checking a balance. Monthly fees can add up to $40 or $50, taking so much out of a paycheck that an employee may fall below the minimum wage. Employees say there is almost no way to avoid paying to access their money.
Some employees who are given the option to be paid in more traditional ways, through a paycheck or direct deposit, complain that the choice is illusory since they are automatically enrolled in the payroll card system. The issue has caught the attention of the New York attorney general, Eric Schneiderman, who has launched an investigation into prepaid card use by 20 major businesses, mostly retail and restaurants.
Prepaid cards are a growing area of the financial sector because these products have largely escaped the new rules and regulations protecting financial consumers, and banks are looking to recoup the millions of dollars lost as a result of the new restrictions. For instance, there is a $7 inactivity fee for infrequent use on payroll cards used by more than two dozen major retailers. The Federal Reserve has barred inactivity fees on credit and debit cards.
Employers who want to utilize this system for payroll should bear the cost for employees. The situation now, where workers have to pay to get paid, is unacceptable.