“Underbanked” and Living Debit Card to Debit Card

Why bother with paychecks?  A growing number of low-wage workers are no longer getting paychecks but receive prepaid cards from their employers that work like debit cards.

At first glance this might seem like a helpful option for “underbanked” low-wage employees, who may not have bank or checking accounts. However, bank charges and fees are tacked on when workers use the paycheck debit cards to accesses their money. Fees can range from $1.75 for each withdrawal to $2.95 for a paper statement and a $6 charge to replace a lost card. In some cases, an “inactivity fee” is deducted if the card is not used often enough. These charges take unwelcome bites out low-wage earners’ already tiny income.  

The debit payroll cards are supposedly optional, but many employees are not aware they have a choice; other companies are not even offering standard payroll services. Not surprisingly, this option for employees is a big cost saver for companies and a substantial money maker for card issuers.

Companies and card issuers, who 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.”

[emphasis added]

The NYtimes.com reports that dozens of major companies – including Taco Bell, Walgreens, and Wal-Mart – offer pre-paid cards to workers. In 2012 there was $34 billion on 4.6 million active cards. One business research firm estimates by 2017 there will be $68.9 billion loaded onto 10.8 million payroll cards. Each card generates fees for the bank that issues the card in addition to whatever the bank charges a company for their employee payroll card service.

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.  

NetSpend is a 14-year-old company that pays its execs handsomely. The publically traded company shelled out $3.4 million in salary and stock compensation to president Charles Harris. In addition, CEO Dan Henry got base pay of $401,500, but with “bonus” and “incentive” compensation and stock equity payments, his earnings for 2012 were up at $2.4 million. As you might expect, none of the executives here are “underbanked”- if anything, they are overbanked. They are definitely not paid in debit cards.  

8 thoughts on ““Underbanked” and Living Debit Card to Debit Card

  1. Every time my kids go to an ATM from another bank they pay $3 or more to take out money.  All sorts of monthly charges take money from their accounts.  It’s entirely possible that the convenience outweighs the relative difference in cost and that the people choosing the debit cards are making a rational decision.

  2. why doesn’t this list surprise me?

    Wal-Mart wants to be the company store.  What better way to ensure that your employees don’t even leave the store after getting paid before purchasing a few necessities right on the premises?

  3. New York’s top prosecutor is investigating some of the state’s largest employers over their use of A.T.M.-style cards to pay their hourly employees.

    The New York attorney general, Eric T. Schneiderman, has sent letters seeking information to about 20 employers, including McDonald’s, Walgreen and Wal-Mart*, say people briefed on the matter.

    http://dealbook.nytimes.com/20

    *WalMart stores here in Vermont “offers” debit card payroll to employees

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