PAYROLL CARDS: CONVENIENCE OR JUST A CON?

Payroll Cards are a way for employers to pay their employees electronically by debit card. The employee is able to use the card for purchases without having to cash a paper check. The employee has an option to be paid electronically without opening a bank account

However, there have been recent complaints about the payroll card system. Many of the payroll cards charge fees for cash withdrawals and even for checking balances. These problems have come to the attention of the federal government in the form of a class action lawsuit brought against McDonalds in Pennsylvania this past June.

STATEMENT FROM THE FED
On September 12th, 2013, the Consumer Financial Protection Bureau released a warning/ bulletin reminding employers of the federal law under the Electronic Funds Transfer Act (the law that covers credit card transactions). Under federal law, employees with payroll cards must be given an option to be paid a different way. If the employee chooses the payroll card, s/he must be notified of all the fees and penalties and must be provided with balance and account information. Additionally, the employee must be afforded limited liability if the card is lost or stolen, or there is an account error, so long as the employee reports the loss, theft or error promptly.

LOW PAY, HIGH FEES
Most of the problems with payroll cards occur in the retail, food and restaurant industries. These industries have many youth workers, low paid workers and workers without bank accounts. When check cashing, balance inquiry and cash withdrawal fees are charged, there are very few funds left for household essentials. You may be getting paid a decent hourly wage. But after the fees are deducted, you may be getting paid the equivalent of minimum wage.

INFORM YOURSELF
I've written a previous article about why people should consider opening an account at a bank, credit union or internet bank: The B Word: Bank. I also give tips on what to do if you've been prevented from opening an account due to past bounced check issues. However, if you are unable or unwilling to open a bank account, make sure that you make an informed decision about how you receive your pay. Even though I am not in favor of check cashing establishments, these establishments charge a one time fee when you cash your check, as opposed to multiple fees as you use your payroll card. If you do opt to receive your pay through a payroll card, make sure your employer provides you with all the information on fees and penalties so that you can receive as much of your hard earned funds as possible.

Let's Be Careful Out There