Earlier this summer, we reported on a new trend—especially prevalent in low-wage industries—where 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 Consumer Financial Protection Bureau (CFPB) warned employers yesterday about the misuse of prepaid payroll cards and that they cannot require workers receive their wages via prepaid cards.   

The cards save the employer money, and mean big (and mostly unregulated) profits for the banks and financial institutions that issue the cards. But they also eat big chunks of the workers’ pay though a bevy of fees they must pay to access their accounts.

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.

The CFPB bulletin reminds employers that they cannot require their employees to receive wages on a payroll card. The bulletin also explains some of the federal consumer protections that apply to payroll cards, such as fee disclosure, access to account history, limited liability for unauthorized use and error resolution rights. Says CFPB Director Richard Cordray:

Employees must have options when it comes to how they receive their wages. Today’s release warns employers that they cannot mandate that their employees receive wages on a payroll card. And for those employees who choose to receive wages on a payroll card, they are entitled to certain federal protections.

Read the full bulletin to employers.

The CFPB action on prepaid cards shows how the agency can protect workers and consumers and rein in the abuses of big corporations, banks and Wall Street. This week at the AFL-CIO Convention 2013 in Los Angeles, Sen. Elizabeth Warren (D-Mass.) credited efforts by the AFL-CIO and its allies for helping create the CFPB in the face of strident opposition by the financial community. In its short existence, she said:

That little agency has already returned half a billion dollars to families who were cheated by big financial institutions and helped tens of thousands of consumers solve their problems with big banks.