The Consumer Financial Protection Bureau issued a bulletin warning employers against using only so-called payroll cards to pay workers. The agency said that by law workers must be able to choose how they receive their wages. If they choose to be paid with payroll cards, they are entitled to protections such as disclosure of fees, it said.
Complaints received included fees for withdrawing cash and checking card balances. Critics say payroll cards with high fees mean that some workers are essentially making less than minimum wage.
A woman who worked at a McDonald's in northeastern Pennsylvania filed a class-action lawsuit in June against the owners of 16 McDonald's Corp. restaurants in the area, challenging their use of payroll cards and protesting fees.
Attorneys for the restaurant owners have said the debit cards are "the functional equivalent" of cash or checks and that the employees consented to the payment method.
Nearly 4 million U.S. households, or 3.2 percent, have someone who receives wages on a payroll card, according to a 2011 survey by the Federal Deposit Insurance Corp. The cards are often used by people without a bank account.
The consumer agency, in its bulletin issued Thursday, said it has received reports of companies, especially in the retail and food-service industries, paying wages only through debit cards. The agency said it has the authority to enforce the law against anyone who violates it, including employers and the banks that issue payroll cards.
Agency: Firms can't only use debit cards to pay
The back story................
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For these largely hourly workers, paper paychecks and even direct deposit have been replaced by prepaid cards issued by their employers.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.”