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Friday, December 9, 2016

Employers And Banks Bilk Workers With Payroll Cards

A new trend has emerged in which low-wage employers pay their workers with unregulated, high-fee prepaid debit cards.

While Bank of America backed down in the face of public outrage against charging customers $5 for using a debit card, there’s been a focus lately on the fact that big banks still charge customers for using cards — it’s just that the cards are prepaid debit cards, and the money loaded onto them is from government benefits. Janelle Ross at the Huffington Post had two hard-hitting exposes on how banks are profiting from the distribution of unemployment benefits. I followed up to point out that they also make a killing off of distributing food stamps, even more so because they make money off of both fees from customers and payments from governments for taking the work off of their hands.

Felix Salmon points out that this trend shouldn’t have to be negative. Checks, he says quite vehemently, are outdated. “They’re expensive, insecure, anachronistic, and dangerously reliant on the less-than-stellar delivery record of the US Postal Service,” he writes. Checks are “a technology which deserves to be killed off with extreme prejudice.”

Missing from the discussion of unemployment benefits and food stamps is the fact that low-wage employers are now turning to the same idea. But perhaps it would seem on its surface that employers who are similarly doling out money — this time, salaries and wages — without the use of paper would be a win for everyone. Wal-Mart, one of the most gargantuan of low-wage employers, announced last year that its payrolls would be distributed completely paper-free. For employees with traditional bank accounts, that means they can simply get their checks through direct deposit. But for the 17 billion unbanked Americans, that won’t be possible. The solution for them is the payroll card, which is basically a prepaid debit card with wages loaded onto it. According to a company spokesperson, about half of its 1.4 million employees use direct deposit. That leaves the other half, about 700,000, with no option except payroll cards. Wal-Mart isn’t alone in this practice. The FDIC estimates that these cards were used to distribute $15.9 billion in wages in 2007; that number is expected to reach $60 billion by 2014. One group estimates that there will be over 17.5 million cards in use this year alone. Where Wal-Mart goes, the industry will follow.

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