McDonalds Owners’ Payroll Cards Broke PA Law, Judge Rules

McDonald’s franchise owners broke the Pennsylvania Wage Payment and Collection Law when they forced employees to use payroll cards Judge Thomas F. Burke Jr. ruled this week.
But, in his ruling, the veteran jurist pointed out that the headline-grabbing lawsuit is a case of first impression in Pennsylvania, as lawmakers who wrote the law

“did not contemplate the concept of a payroll debit card.” Judge Burke noted there is a bill in the state Legislature to regulate debit-card wage payment and suggested the state Department of Labor and Industry should express a formal position on the matter.

As it stands now, however, the class-action suit against McDonald’s franchise owners Albert and Carol Mueller of Clarks Summit can moved forward, Judge Burke ruled.

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In 2008, the Department of Labor and Industry told the American Payroll Association that payroll cards were permissible, but said that

“it would be prudent, however, for an employer to obtain authorization from each employee if alternative forms of payment, such as direct deposit or debit cards, are being utilized.”

The text of the letter is available here

An article on ThinkProgress reports that the issuer of the cards, JPMorgan Chase, has begun refunding fees paid by cardholders.

“Our lawfirm became bombarded with telephone calls. All of the class members were getting a form letter from Chase saying, we have decided to refund you all of the fees you have paid Chase,” Cefalo said. “We were shocked.” The voluntary payments from Chase ranged from as little as a penny to as high as $148, the attorney said. A call to the bank’s press office about the payments was not immediately returned.

The Chase refunds will hurt the industry if they are seen as an admission that the fees were somehow wrong to charge. It is likely that Chase is refunding the fees to shield itself from any further involvement in a case that focuses on a business Chase is abandoning. In 2014, Chase said that it planned to close or sell all of its prepaid business except for its Chase Liquid general purpose reloadable cards. (Read about that change here)

The case will likely be appealed, but the fallout for the industry will be the same regardless of the outcome. Payroll cards will suffer reputational damage because of the missteps of a fast food manage in the middle of Pennsylvania. The risk is that overzealous regulators force low income people back to a cash-based economy which has higher costs and leaves people on the wrong side of the digital divide.

Overview by Ben Jackson, Director of Prepaid Advisory Service at Mercator Advisory Group