Monday, July 15, 2013

Blow Back Over Payroll Cards Reaches Washington

The blow back over payroll cards just became heftier. An influential group of U.S. Senators wants federal investigations into fees and practices associated with these reloadable prepaid debit cards that have become a popular way for employers to cut payroll costs.

In a letter addressed to Richard Cordray, Director of the Consumer Financial Protection Bureau (CFPB), the Senators asked the consumer watchdog agency to render an opinion on whether employers who require employees to accept pay via a prepaid debit card are in violation of Regulation E.

The blow back over payroll cards just became heftier. An influential group of U.S. Senators wants federal investigations into fees and practices associated with these reloadable prepaid debit cards that have become a popular way for employers to cut payroll costs.

In a letter addressed to Richard Cordray, Director of the Consumer Financial Protection Bureau (CFPB), the Senators asked the consumer watchdog agency to render an opinion on whether employers who require employees to accept pay via a prepaid debit card are in violation of Regulation E  (a set of federal protections for consumers using electronic payment methods, like debit cards). They also asked the Department of Labor to look into what kind of disclosures companies should and are making to employees whose paychecks are automatically deposited to payroll cards.
Payroll cards first emerged in the 1980s as an alternative for companies that wanted to convert payroll to Direct Deposit but couldn't because some employees didn't have bank accounts. In recent years the cards have become a favorite among large corporations with a lot of hourly employees (think McDonalds, or Walmart). That's because Direct Deposit is designed for payments that are regular and relatively constant, and hourly employees' pay typically varies from check to check.

But the fees that typically accompany prepaid debit cards - charges for ATM withdrawals, balance inquiries and POS charges - have become a sore point with employees. And recent media reports suggest their complaints are being taken seriously. (See previous post, below.) In their letter to Cordray the lawmakers said it was those reports that prompted their concerns.

"Workers should be able to receive their pay without fear of losing money to debit card fees," said Senator Bob Casey (D-PA). "No workers - and especially lower income workers - should have to worry about hidden fees taking a bite out of their hard-earned paychecks," added Sen. Robert Menendez (D-NJ). Menendez recently introduced legislation - the Prepaid Card Consumer Protection Act - intended to limit the fees on prepaid cards and to require full disclosure of allowable fees at the time of purchase. Senator Dick Durbin, the Illinois Democrat whose name has become synonymous in banking circles with debit card fee caps, also signed the letter, as did Elizabeth Warren, the Massachusetts Democrat who originally set up the CFPB, which was created by the Dodd-Frank Financial Reform Act.

There's no word yet on how CFPB or the Labor Department will respond. However, CFPB has expressed concerns about prepaid debit card pricing and disclosures. In March the bureau issued an "Advance Notice of Proposed Rulemaking" seeking input into "first-ever" federal regulations addressing prepaid debit cards. The proposal addresses pricing transparency, disclosures and related consumer protections.

3 comments:

  1. Here's another update: More than 280,000 people have signed a petition calling on McDonalds Corp. to allow employees to choose not to accept pay via payroll checks. The petition, backed by the advocacy group Change.org, includes several signatories who are McDonalds shareholders.

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  2. Nancy Atkinson, Senior Analyst, Aite Group, commented:

    The uproar over payroll cards seems out of proportion to me.

    I believe politicians are forming their opinions regarding the detrimental impact of paycards on low-paid workers without an accurate comparison to the alternatives. Federal and state laws regulate most aspects of the employer/employee relationship, and wage payment is no exception. Enforcement of these existing laws with the companies that implement paycards resolves the negative impact of fees for employees with payroll cards.

    Under the federal Fair Labor Standards Act (FLSA), employees must receive all of their wages without deductions, fees, or discounts. Additionally, state wage payment statutes frequently require that employees be paid their wages "without discount," "without any reduction," or "without cost." In the context of payroll cards, most states interpret this requirement to mean that employees must be provided at least one means of accessing their full wages each pay period that lacks fees or deductions. Payroll card programs, therefore, must provide alternatives for employees to access their full wages, and it is the responsibility of the employer to ensure such a means exists and that employees are aware of it. Employees must be apprised of possible fees before they are enrolled in their employer's payroll card program. In addition, employers who are considering the use of payroll cards should consult with potential vendors and ask to see their fee schedules. Vendors may reduce employee fees based on negotiations with the employer and the potential for increased business for lower (or no) fees from that employer’s staff.

    Granted, fees are charged for the use of some ATMs, but tens of thousands of fee-free ATMs exist across the United States, and specific payroll card programs can be established for use on a fee-free basis. ATMs with fees provide at least two warnings that an additional fee will be charged and allow for cancellation of the transaction before the fee is charged; users who pay ATM fees opt to do so for convenience rather than go to an ATM that is fee-free.

    Politicians should not be so quick to dismiss the negative impact of check-cashing (the prime alternative to payroll cards) fees at 3% of the total value of the check, which can exceed individual transaction fees. Further, non-bank account holders are greatly inconvenienced by payroll checks. Time is wasted getting to check-cashing locations and waiting in line for service. Once checks are converted to cash, then paying bills requires in-person payments at the sites of providers. Cash cannot be used for online purchases. Payroll cards preclude these inconveniences.

    Payroll cards are not necessarily more costly for workers regardless of pay level. The real issue is enforcement of existing wage laws with the companies that implement such payment methods.

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  3. I think Payroll cards are meant to benefit people, this practice benefits both employers and employees. It allows employers to reduce costs associated with paper checks and allows employees without bank accounts to obtain their wages without having to visit a check cashing location.

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