I recently spoke to a Best Buy employee who was frustrated because he was having trouble accessing his paycheck. His manager told him that he could not opt for a paper check or direct deposit to receive his first paycheck– he needed to use a prepaid debit card given to him by the company. He said that it was inconvenient for him to drive to an in-network ATM to withdraw his money and avoid paying a surcharge.

His story echoes the experience of millions of Americans right now whose employers are moving towards using payroll debit cards to pay their employees in lieu of paper checks. Payroll debit cards are prepaid debit cards that work much like a traditional debit card– users can withdraw money at ATMs, make point-of-sale purchases, and even write checks out of their account. Aite, a financial research and consulting firm, reported that 5.8 million workers received their wages via payroll cards in 2013 and that they expect this number to increase to 10.8 million by 2017.

If these cards were properly regulated, they could be a win-win for companies and unbanked or underbanked employees– that is, employees, usually low-income and lacking financial literacy, who either do not have bank accounts or lack a full range of bank services. Payroll cards would save companies money on paper checks (which cost $2.75 more per employee per payment than the card) and provide underbanked employees with added security. Underbanked employees wouldn’t have to worry about losing a paper check and could get their money on payday rather than waiting a few business days for their check to be processed– time that workers living paycheck to paycheck just don’t have.

However, as it currently stands, many employees face monthly maintenance fees, closing fees, and other service fees for the use of their card– money that comes directly out of their wages.

After investigating 40 companies using payroll cards including Walmart, Walgreen, and Home Depot, New York State Attorney General Eric Schneiderman proposed the Payroll Card Act. This law would protect employees who use payroll cards, ensuring that employers obtain the informed consent of employees before enrolling them in the payroll card program, mandating that companies provide payroll cards with a network of ATMs within a short distance of their employees’ place of work and of residence, and requiring companies to use vendors that offer free services like card replacements and customer service. He says that he hopes other states model similar laws after the Payroll Card Act. In most states, these payroll cards are partially or totally unregulated, because labor laws just haven’t caught up to the technology. Schneiderman concludes, “While technology is changing the ways in which workers are paid, it is essential that the law keep pace with these developments in order to ensure that the most vulnerable workers are not left behind.”

Contact the author:

Jennifer Swanson

[email protected]

Sources:

http://www.forbes.com/sites/halahtouryalai/2013/07/23/are-hourly-workers-being-short-changed-the-truth-about-payroll-cards/

http://www.today.com/money/feds-employers-cant-force-payroll-debit-cards-workers-8C11312099

http://dealbook.nytimes.com/2014/06/12/eric-schneiderman-favors-state-curbs-on-payroll-cards/?_php=true&_type=blogs&_r=0

http://finance.yahoo.com/news/employers-cant-force-debit-cards-100000166.html

http://www.forbes.com/sites/halahtouryalai/2013/07/30/monthly-fees-purchase-fees-reloading-fees-the-best-and-worst-prepaid-cards/

https://www.putneylaw.com/cu_071014.html

http://business.time.com/2012/11/20/why-so-many-americans-dont-have-bank-accounts/