State-of-the-Art DDA Account Underwriting and Opening

by Ron Mazursky 0

A story in the New York Times bashes payroll cards because cardholders may need to pay fees for using the cards just like they might need to pay fees on a checking account or debit card:

A growing number of American workers are confronting a frustrating predicament on payday: to get their wages, they must first pay a fee.

For these largely hourly workers, paper paychecks and even direct deposit have been replaced by prepaid cards issued by their employers. Employees can use these cards, which work like debit cards, at an A.T.M. to withdraw their pay.

What this lead in ignores is that most states have laws that prohibit employers from forcing workers to accept their pay in any way that costs them money. For an employer the appeal of a payroll card is the ability to eliminate paper checks for employees who do not have a bank account. By moving to electronic payments, employers can eliminate printing costs, lost and stolen checks, and some types of fraud. Workers can be paid faster and reduce costs from check cashing fees. An employer that is offering a payroll card can just as easily offer direct deposit to a bank account, and it is unlikely that anyone other than a confused manager would force and employee to take a prepaid card. Employers typically do not receive any money for signing workers up for direct deposit.

The Times goes on to describe some of the fees charged for payroll cards. While the fees can add up, they are not out of line for other financial services:

But in the overwhelming majority of cases, using the card involves a fee. And those fees can quickly add up: one provider, for example, charges $1.75 to make a withdrawal from most A.T.M.’s, $2.95 for a paper statement and $6 to replace a card. Some users even have to pay $7 inactivity fees for not using their cards.

Most banks charge around $2 for withdrawing money at an ATM outside of their network, and almost every payroll card has access to a surcharge free network, so not every withdrawal costs money. Paper statements incur fees at a number of banks, especially depending on the account. Bank of America charges a monthly fee of $8.95 if a customer using its eBanking account does not use a paperless statement. The card replacement costs are a red herring too, as most banks will charge around $5 for that service and more for a rush delivery.

The story gets somewhat egregious, when the Times writes the following paragraph:

These fees can take such a big bite out of paychecks that some employees end up making less than the minimum wage once the charges are taken into account, according to interviews with consumer lawyers, employees, and state and federal regulators.

This is risk with every kind of financial service. The same thing could happen with an employee who cashes a check at a check casher and then buys money orders or uses walk-in bill payments to pay bills. It could also happen with a checking account customer who fails to maintain a minimum balance, overdraws an account or uses a number of out-of-network ATMs. While all products are not created equal, the problem is not with the payroll card per se – it is with the way they cards are used and the way in which employers and workers understand the terms and conditions on the card. Both groups, and payroll card providers, should make sure that everyone involved: employers, employees, and providers understand their options and how best to use them to manage their money effectively.

Click here to read more from the New York Times.

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