Prepaid Cards Are Replacing Paychecks at More Companies

Photo (cc) by 401(K) 2013

We recently wrote about a woman who sued her employer for paying her by prepaid debit card.

It turns out that payment method is pretty common, and not necessarily optional. In many instances, it’s at least the default choice, The New York Times says:

At companies where there is a choice, it is often more in theory than in practice, according to interviews with employees, state regulators and consumer advocates. Employees say they are often automatically enrolled in the payroll card programs and confronted with a pile of paperwork if they want to opt out.

Taco Bell, Walgreens, Walmart and dozens more offer this payment method, the Times says, and it’s gaining popularity with employers. Last year, $34 billion was loaded onto 4.6 million payroll cards. Those figures are expected to more than double by 2017.

Bank of America, Wells Fargo and Citigroup, among others, pitch payroll cards as convenient for employees. But the truth is, they’re cheaper for employers, the Times says, and some banks even pay employers, per head, to enroll people. Citibank pays the New York City Housing Authority $1 per person, the Times says.

The cards shift the financial burden of processing payment onto the employees. There are often fees for everything from an ATM withdrawal to a balance inquiry to inactivity and card replacement. Added up, these costs associated with just receiving a paycheck put many employees below minimum wage, the Times says.

Banks defend the fees by saying they’re cheaper than what someone who doesn’t have a bank would pay — even though fees are one good reason those people might avoid banking to start with.

“Someone cashing a payroll check for $500 would end up paying $15 at a 3 percent check-cashing fee,” Citigroup spokeswoman Nina Das told the Times.

My ears hear that as: We screw minimum wage workers more gently. (Though in some ways, banks are little different from payday lenders.) Do you think these cards are a fair way to pay someone for their work? Share your thoughts on our Facebook page.

Disclosure: The information you read here is always objective. However, we sometimes receive compensation when you click links within our stories.

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