Paid via Card, Workers Feel Sting of Fees

Submitted by: Phil Riebel 07/03/2013

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


New York Times - June 30, 2013

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   For these largely hourly workers, paper paychecks and even direct deposit have been replaced by prepaid cards issued by their employers.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.

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.


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.


Devonte Yates, 21, who earns $7.25 an hour working a drive-through station at a McDonald’s in Milwaukee, says he spends $40 to $50 a month on fees associated with his JPMorgan Chase payroll card.


“It’s pretty bad,” he said. “There’s a fee for literally everything you do.”


Certain transactions with the Chase pay card are free, according to a fee schedule.


Many employees say they have no choice but to use the cards: some companies no longer offer common payroll options like ordinary checks 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 are often automatically enrolled in the payroll card programs and confronted with a pile of paperwork if they want to opt out.


“We hear virtually every week from employees who never knew there were other options, and employers certainly don’t disabuse workers of that idea,” said Deyanira Del Rio, an associate director of the Neighborhood Economic Development Advocacy Project, which works with community groups in New York.


Taco Bell, Walgreen and Wal-Mart are among the dozens of well-known companies that offer prepaid cards to their workers; the cards are particularly popular with retailers and restaurants. And they are quickly gaining momentum. In 2012, $34 billion was loaded onto 4.6 million active payroll cards, according to the research firm Aite Group. Aite said it expected that to reach $68.9 billion and 10.8 million cards by 2017.


Companies and card issuers, which include Bank of America, Wells Fargo and Citigroup, say the cards are cheaper and more efficient than checks — a calculator on Visa’s Web site estimates that a company with 500 workers could save $21,000 a year by switching from checks to payroll cards. On its Web site, Citigroup trumpets how the cards “guarantee pay on time to all employees.”


The largest issuer of payroll cards is NetSpend, based in Austin, Tex. Chuck Harris, the company’s president, says it attracts companies by offering convenience to employees and cost savings to employers.


“We built a product that an employer can fairly represent to their employees as having real benefits to them,” he said.


Sometimes, though, the incentives for employers to steer workers toward the cards are more explicit. In the case of the New York City Housing Authority, it stands to receive a dollar for every employee it signs up to Citibank’s payroll cards, according to a contract reviewed by The New York Times. (Sheila Stainback, a spokeswoman for the agency, noted that it had an annual budget of $3 billion and that roughly 430 employees had signed up for the card.)


For Natalie Gunshannon, 27, another McDonald’s worker, the owners of the franchise that she worked for in Dallas, Pa., she says, refused to deposit her pay directly into her checking account at a local credit union, which lets its customers use its A.T.M.’s free. Instead, Ms. Gunshannon said, she was forced to use a payroll card issued by JPMorgan Chase. She has since quit her job at the drive-through window and is suing the franchise owners.

“I know I deserve to get fairly paid for my work,” she said.