Paid via Card, Workers Feel Sting of
Prepaid Card Fees
Natalie Gunshannon, 27, with
her daughter, Anie Popish, 7, said she had to use a card because her
employers would not deposit her pay directly into her account.
By JESSICA SILVER-GREENBERG and STEPHANIE CLIFFORD
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deposit have been replaced by prepaid cards issued by their employers.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 (that is in addition to the average $2.00 or $3.00 ATM fee), $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.”
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.
The franchise owners, Albert and Carol Mueller, said in a statement that
they comply with all employment, pay and work laws, and try to provide a
positive experience for employees. McDonald’s itself, noting that it is
not named in the suit, says it lets franchisees determine employment
and pay policies.
Some employers and card issuers say that the payroll cards are useful
for low-wage workers who do not have bank accounts. They also say that
the fees on the cards are usually lower than those associated with
check-cashing services, which are often the only other option for people
who do not have bank accounts.
“An unbanked employee is likely to be subject to a check-cashing fee
when they try to cash a payroll check,” said Nina Das, a Citigroup
spokeswoman. She said that “someone cashing a payroll check for $500
would end up paying $15 at a 3 percent check-cashing fee.”
This population — people who tend to use few, if any, bank services — is
swelling. About 10 million households in the United States do not use a
bank at all, up from nine million four years ago, according to
estimates from the Federal Deposit Insurance Corporation. And 24 million
households that do have a bank account still use expensive financial
services like prepaid cards, the agency said.
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. As a result, some of the nation’s largest banks are expanding into the business, banking analysts say.
The lack of regulation in the payroll card market, while alluring for
some of the issuers, can potentially leave cardholders swimming in fees.
Take the example of inactivity fees that penalize customers for
infrequently using their cards. The Federal Reserve has banned such fees
for credit and debit cards, but no protections exist on prepaid cards.
Cards used by more than two dozen major retailers have inactivity fees
of $7 or more, according to a review of agreements.
Some employees can also be hit with $25 overdraft fees, called “balance
protection,” on some of the prepaid cards. Under the Dodd-Frank
financial overhaul law, banks with more than $10 billion in assets are
barred from levying overdraft fees on customers’ checking accounts.
Many fees are virtually impossible to dodge, some employees say. A
Victoria’s Secret employee, Bintou Kamara, for example, said it cost her
$1.50 just to transfer money from her Citi payroll card to her checking
account.
“I just make such little money that it seems like a lot to pay just to
get access to it,” said Ms. Kamara, 23, who works as a sales clerk in
New York.
Naoki Fujita, a policy associate at Retail Action Project, an advocacy
group for retail workers, said, “These are people who can least afford
to fork over huge fees.”
On some of its payroll cards, NetSpend charges $2.25 for out-of-network
A.T.M. withdrawals, 50 cents for balance inquiries via a representative,
50 cents for a purchase using the card, $5 for statement reprints, $10
to close an account, $25 for a balance-protection program and $7.50
after 60 days of inactivity, according to an April presentation by the
company reviewed by The Times.
Patrick Brown, NetSpend’s senior vice president, said the company was
“passionate that consumers can access their wages free of charge,”
providing an A.T.M. navigator to help employees find fee-free cash
machines.
Some large retailers, like Home Depot, Wal-Mart, Walgreen and Limited
Brands, the parent company of Victoria’s Secret, say they let employees
choose whether they will receive their wages through direct deposit or a
prepaid card, along with checks in some cases.
In other cases, employees say that while they do get some free cash
withdrawals at certain A.T.M.’s, it is difficult to find the right
machines in their neighborhoods. Ms. Das of Citigroup said that its
“payroll card holders have access to over 27,000 A.T.M.’s across the
country.”
Problems arise, though, when employers mandate the use of prepaid cards.
In 25 states, employers are allowed to forgo paper checks and offer
direct deposit or payroll cards; in the remaining states, regulations
are less clear and employers are taking a risk by not offering a
paper-check option, too, according to research by Madeline K. Aufseeser,
an analyst at Aite. It is unclear how many employers offer payroll
cards.
For low-wage employees, the fees can lead to unusual solutions.
Krystal McLemore, 22, makes $7.65 an hour at a Taco Bell in St. Louis.
She said she was told to sign up for a payroll card. (Taco Bell says it
“offers direct deposit and a voluntary option of payroll cards as an
added convenience” for employees.)
But she grew tired of being charged $1.75, in addition to the A.T.M.’s
fees, to withdraw cash. After a tip from a co-worker, Ms. McLemore
realized she could reduce her charges if she took out all her wages once
a month. Now, supplied with one of the most modern banking products,
Ms. McLemore has a decidedly old-fashioned way of handling her pay: it
is stacked in a shoe box in her closet in $10s and $20s.
“It costs too much to get my money,” she said.
