Pay to Get Paid: Why Prepaid Card Payroll Systems Are Devastating for Low-Income Employees
1:45 pm, July 1st | by Grace Rasmus
Many employers have dropped the traditional paycheck or direct deposit setup in favor of prepaid cards. The cards, which can work like a debit card to get cash from an ATM, are causing a huge problem for a growing number of low-income, hourly-employed Americans: in order to get paid, they have to pay a hefty fee.
Devonte Yates, a McDonald’s employee in Milwaukee who earns $7.25 an hour, told the New York Times that he spends $40 – $50 per 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.”
A typical card provider charges $1.75 to make a withdrawal from most ATM machines, $2.95 for a paper statement and $6 to replace a card. Some users even have to pay $7 inactivity fees.
Taco Bell, Walgreen and Wal-Mart are among the many companies that offer prepaid cards to their workers. Employees are often unaware that they have another option besides the pre-paid card.
In 2012, $34 billion was loaded onto 4.6 million active payroll cards. According to the research firm Aite Group, it’s projected that $68.9 billion will be loaded onto 10.8 million cards by the year 2017.
Card issuers like Citigroup, Bank of America, and Wells Fargo claim that their prepaid cards are cheaper and more efficient than regular checks; apparently, a company with 500 employees can save about $21,000 a year by switching to prepaid cards. Some incentives to switch are more explicit: the New York City Housing Authority, for example, receives a dollar for every employee it signs up for Citibank’s payroll card system.
Card providers also argue that the prepaid cards benefit low-income employees who do not have bank accounts, a growing contingency as evident by the leap from 9 million to 10 million Americans without bank accounts in the last year.
Natalie Gunshannon, another McDonalds employee, is suing the franchise owners after her bosses refused to pay her directly into her bank account, which would let her withdraw money from her bank’s ATMs for free. Instead, they insisted on a prepaid JP Morgan Chase card.
“I know I deserve to get paid fairly for my work,” she said.