The 4th of July got me thinking about independence – financial independence – and how elusive it is for many lower-income Americans.
A barrage of bank fees, including high overdraft fees, exorbitant-interest payday loans and now this: payroll debit cards.
Some employers have begun replacing hourly workers’ traditional paychecks with prepaid debit cards in lieu of paper paychecks. Unlike traditional debit cards, however, payroll cards usually involve hefty fees, especially for the so-called “unbanked” – those without bank accounts – who end up paying higher than average ATM fees for withdrawals, processing fees for using the cards in stores, fees for requesting paper statements and inactivity fees for failing to spend up the card. Even transferring money from the card to a bank account could involve a fee.
Fees range from 50 cents for a balance inquiry, to $1.75 for using the ATM and as much as $7 for an inactivity fee.
Jill Schlesinger, a CBS business news analyst, said Tuesday on “CBS This Morning” that employers argue it is easier for people without bank accounts to take care of business without carrying around large amounts of cash and that some employees have even asked for the cards.
Indeed, it is cheaper than check cashing outlets and repaying the interest on payday loans. But comparing this deal to usury loan situations doesn’t exactly set the bar high for consumer protection.
Some employees, according to The New York Times, even reported being pressured to choose the card, being inundated with paperwork if they want to opt out of the program.
Giving workers payroll cards certainly is cheaper for employers than issuing paper checks. McDonald’s, Taco Bell, Walgreen, Wal-Mart and the New York City Housing Authority are among major enterprises using the cards. Some big banks, including Wells Fargo, Bank of America and Citibank, are among the issuers of payroll cards.
The Housing Authority, according to Schlesinger and The Times, has an added incentive. It receives a dollar for every employee it signs up to Citibank’s payroll cards.
After news of the practice began to spread, several retailers, including Home Depot, Wal-Mart and Walgreen, said they would let employees choose whether to receive their wages through direct deposit or a prepaid card. Checks will be allowed in some cases.
Schlesinger said that McDonald’s now gives employees a choice, following a lawsuit by a former employee who questioned the practice.
As with many of these fee schemes, payroll cards are not regulated. The Federal Reserve, for example, has banned inactivity fees for debit and credit cards, but payroll cards are not covered under the rules.
“I think in the end, this is about transparency and giving their employees choices,” Schlesinger said. “If the companies do that, they’re fine. If they are not being transparent, that is not good.”
It could be argued, however, that there is something inherently unfair about employers saving money and putting it in their pockets, while workers are having it picked out of theirs in the name of convenience.
Jackie Jones, a journalist and journalism educator, is director of the career transformation firm Jones Coaching LLC and author of “Taking Care of the Business of You: 7 Days to Getting Your Career on Track.”