Prepaid Cards: High Fees for Low Wages
When payday rolls around, more and more workers aren’t getting paper paychecks or direct deposits to their checking accounts, but instead are finding their wages on prepaid cards.
The new trend—especially prevalent in low-wage industries—saves the employer money, and means big (and mostly unregulated) profits for the banks and financial institutions that issue the cards. It also eats big chunks of the workers’ pay though a bevy of fees they must pay to access their accounts.
A recent story in The New York Times found:
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.
Workers typically are forced to pay withdrawal fees ($1.75 or more) each time they access their money at most ATMs and even fees to transfer money from the card to a personal checking account. Other fees can include $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.
Devonte Yates, 21, earns $7.25 an hour working a drive-through station at a McDonald’s in Milwaukee. He told the paper he spends $40 to $50 a month on fees associated with his JPMorgan Chase payroll card.
It’s pretty bad. There’s a fee for literally everything you do.
Because of public outcry over this issue, it was just announced McDonald's would abandon this practice of compulsory debit card payments. It now will offer standard paychecks or direct deposit. See the story from In These Times .
The Times reports that Taco Bell, Walgreen and Walmart are among the dozens of well-known companies—particularly retailers and restaurants—that offer prepaid cards to their workers.
In many cases, workers don’t have a choice because some companies no longer offer ordinary paychecks or direct deposit.
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 often are automatically enrolled in the payroll card programs and confronted with a pile of paperwork if they want to opt out.
Why are banks and financial institutions marketing the cards so aggressively to employers? Here’s what the Times says:
For banks that are looking to recoup billions of dollars in lost income from a spate of recent limits on debit and credit card fees, issuing payroll cards can be lucrative—the products were largely untouched by recent financial regulations .
