The Office of the Attorney General (AG) for the State of New York is investigating several employers about their use of prepaid payroll cards to pay employees. Forbes magazine reported that the investigation is focused on:
"... the process; if it’s costing employees more in fees and whether or not employees have an easy way to choose how they are paid... Walmart launched its payroll card in 2009. Shortly after, the company met with New York’s Department of Labor to provide it “full details” on how the program works... McDonalds says it offers payroll options in the form of direct deposits or pay cards..."
"Under New York state law employees must give advance written consent to be paid by payroll cards and any agreement to receive wages by the cards can’t be a condition of employment."
Besides McDonald's, and Walmart, other companies being investigated include Home Depot and Walgreens. More employers offer prepaid payroll cards to employees because prepaid payroll cards are one of the least expensive methods to pay employees.
A class-action lawsuit is underway in Pennsylvania where employers allegedly forced employees to accept pay via prepaid payroll cards. The suit also alleged under-payment of pay due to the numerous fees with the payroll cards. When an employer offers an employee pay via a prepaid payroll card this situation highlights the importance for job seekers and employees to:
- Know your payroll rights in the state where you live
- Read closely any prepaid payroll card agreements to understand the costs and fees involved
- Compare those costs and fees to other banking options, such as a checking account at a credit union or a bank
- Visit the website for the attorney general's office or the local agency, to learn more about prepaid payroll card rules in your state
The New York State AG offers this brochure about pay options to help consumers (Adobe PDF). In January 2013, the State of Florida Attorney General reached a settlement with several companies (Account Now, Inc., First Data Corporation, Green Dot Corporation, Net Spend Corporation, and Unirush, LLC) about alleged prepaid debit card abuses:
"Following an investigation based upon concerns that consumers where not clearly advised of important fees and misled by claims that using the cards would build positive credit history, the settlements require the companies to provide clear and conspicuous notice of fees and prohibits them from making misleading claims about the ability of prepaid debit cards to build positive credit history. Additionally, the companies have agreed to pay $115,000 to the Central Florida Chapter of Junior Achievement."
I applaud the New York State AG for this investigation, and hope that other states' attorney generals do the same.
This investigation is good news for several reasons. First, employers' payroll programs should comply with federal and state laws. Second, employees demand choice. Many consumers already have checking and savings accounts where direct deposit is applicable. Third, it is unfair for employers to dodge the costs of direct deposit programs by using payroll cards -- which effectively shift those administrative costs to employees. Once again, the banks are trying to influence administrative processes in a way to produce more revenues for themselves.
To learn more, this blog offers several related articles:
- Move Your Money To... Walmart? A Good Deal?
- Bank of America Merchant Services And Money Network Announce New Payroll Solution
- Consumers Advised To Be Wary Of Prepaid Card Protections
- How To Evaluate Prepaid Card Options
- Is It Wise To Move Your Money To A Prepaid Card?
- 5 Things You Should Know About Prepaid Cards
- Your Rights And The Differences Between The Three Types Of Plastic In Your Wallet Or Purse
- How To Evaluate A Health Care Debit Card Plan From Your Employer
What's your opinion of prepaid payroll cards?
[Update July9: McDonald's employer in Pennsylvania makes prepaid payroll cards optional. Meanwhile, politicians in New York State introduced a proposed bill S04392 to make it easier for employers to pay employees with fee-laden prepaid payroll cards.]