Minimum wage workers forced to be paid through prepaid cards

[jeffrey]

A growing number of American workers are confronting a frustrating predicament on payday: to get their wages, they must first pay a fee.

For these largely hourly workers, paper paychecks and even direct deposit have been replaced by prepaid cards issued by their employers. Employees can use these cards, which work like debit cards, at an A.T.M. to withdraw their pay.

But in the overwhelming majority of cases, using the card involves a fee. And those fees can quickly add up: one provider, for example, charges $1.75 to make a withdrawal from most A.T.M.’s, $2.95 for a paper statement and $6 to replace a card. Some users even have to pay $7 inactivity fees for not using their cards...

http://www.nytimes.com/2013/07/01/business/as-pay-cards-replace-paychecks-bank-fees-hurt-workers.html

[moneybags]

My teen has one of these for her job this summer. She had the option of direct deposit, but only if she provided a check with routing numbers (she doesn't have any checks). I read through the paperwork. It is a bit confusing with all the fees and an option to create a paper check (and I'm a CPA). Basically, she can make one withdrawal per pay period at one of the specified ATMs for free. All other ATM withdrawals involve fees. She just transfers the balance online each pay period without a fee.

If she didn't have her own checking account to transfer the funds to, that would be where she would run into extra fees. I'm guessing a lot of people at these jobs don't have great money skills, so to be forced to take your whole paycheck out at once might not be the best idea. In addition, I don't know how you could get the entire amount out at an ATM since the increments are limited at the ATM.

[bUU]

I think it would be better to move away from using cash in all other aspects of society first, leaving this for last.

[disneysteve]

I've even started to run into this on a professional level. One of the survey companies I work for now offers me two options for payment. I can get a Virtual Visa card that can only be used online or a physical prepaid Visa card. If I choose the physical card, they deduct $2 from the payment so a $20 payment becomes $18, a 10% loss. Last week, I got an $8 card for a $10 payment, a 20% loss.

The virtual Visa card is nearly worthless as I don't shop online that much and when I do, using the virtual card is nearly impossible. Many sites don't allow you to enter 2 forms of payment for the same order so if I have a $10 card but my order is $12, I can't use it. If my order is $8 and I have a $10 card, I can use it but then I lose the other $2. I have yet to find a way to use the full value so I opt for the physical cards and sacrifice the $2 fee each time.

[phantom]

The virtual Visa card is nearly worthless as I don't shop online that much and when I do, using the virtual card is nearly impossible. Many sites don't allow you to enter 2 forms of payment for the same order so if I have a $10 card but my order is $12, I can't use it. If my order is $8 and I have a $10 card, I can use it but then I lose the other $2. I have yet to find a way to use the full value so I opt for the physical cards and sacrifice the $2 fee each time.

When something like this happens, I suggest using the remaining balance to buy yourself an Amazon gift card. You can buy those in any amount, and it's likely you'll want to buy something that Amazon carries eventually. It's still a pain, but it's better than letting the money slip away.

I don't mind getting a prepaid card as payment here or there. I'd rather have a check, but I can find ways to use up prepaid cards if I have to. But, I can't imagine having no choice but to get my entire paycheck on a prepaid card. That would be rough.

[disneysteve]

When something like this happens, I suggest using the remaining balance to buy yourself an Amazon gift card. You can buy those in any amount, and it's likely you'll want to buy something that Amazon carries eventually. It's still a pain, but it's better than letting the money slip away.

Good idea. Thanks.

I don't mind getting a prepaid card as payment here or there. I'd rather have a check, but I can find ways to use up prepaid cards if I have to. But, I can't imagine having no choice but to get my entire paycheck on a prepaid card. That would be rough.

Exactly. I don't mind the prepaid cards. I get them regularly and I use them at the grocery store. Very simple. But if I got my entire paycheck that way it would be an issue. I need the money in my checking account to pay my bills. I can't pay the utilities or the mortgage or anything else with my prepaid Visa card.

[creditcardfree]

You also can't save money if it is on a prepaid Visa....you can only spend it. Obviously, if you have a checking account and the ability to transfer it that is one thing, but if not how do you save any of your earnings.

[disneysteve]

You also can't save money if it is on a prepaid Visa

Sure you can. You just have to withdraw it first - which may incur a fee.

[creditcardfree]

True Steve...I think it just lends itself to a spending card and thus most people will just swipe and spend.

[MonkeyMama]

This is in general, the way things are going. Payroll companies are really pushing this these days. The state of California pays unemployment and disability benefits with debit cards. (Apparently, so do most states?).

[disneysteve]

This is in general, the way things are going. Payroll companies are really pushing this these days. The state of California pays unemployment and disability benefits with debit cards. (Apparently, so do most states?).

That's fine if there is a convenient way to access the funds without paying a fee. Somebody on unemployment or disability certainly doesn't need to be paying a couple of dollars every time they access the funds stored on the card. You should be able to take that card to your bank and deposit the funds in your account with no fee involved. Or you should be able to do an electronic transfer somehow. You need the money in your account, not stored on a card, in order to pay your bills.

[MonkeyMama]

That's fine if there is a convenient way to access the funds without paying a fee. Somebody on unemployment or disability certainly doesn't need to be paying a couple of dollars every time they access the funds stored on the card. You should be able to take that card to your bank and deposit the funds in your account with no fee involved. Or you should be able to do an electronic transfer somehow. You need the money in your account, not stored on a card, in order to pay your bills.

There are all sorts of fees and hassles. I don't think it is fine at all. The big banks win with these arrangements. The government plays along because they save money.

[bjl584]

I've seen this at my part time job. If you don't have the ability to have your check direct deposited, then you get paid on one of these cards.

It's never been an issue for me, but there are a large number of people working there that don't have a bank account and are forced to use these card.

[JoeP]

IMHO, this kind of practice simply boils down to employers saving money by going to a less expensive payroll option, and employees getting stuck with the fees. And since it impacts those making less money even more, I dislike banks even more now.

Regarding bank fees...

A few months ago, we opened an account at a regional bank in another city when we sold a car there, because the buyer paid mostly with cash and we didn't want to travel back with that much cash on hand. I don't regret the decision, but the Fee Schedule (code for "Creative Ways We Will Take Your Money") had fees for virtually everything: paper statement, transferring to another bank, closing within 6 months, going below minimum balance, ATM usage, printing a bank check, etc.

I hate that bank. We had to transfer money to our credit union checking account to pay a contractor, so to give them the financial finger my own way, I walked into the physical branch, withdrew actual cash at a teller window, walked said cash over to my credit union, deposited it into my checking account, and wrote the check. No way am I going to pay anyone for access to my own money. What, I owe them something for the privilege of them holding it for me while paying a generous 0.001% interest rate and loaning it out at 8%?

[disneysteve]

There are all sorts of fees and hassles. I don't think it is fine at all.

Sorry if I wasn't clear. I'm fine with them giving a card instead of a check as long as the funds on the card can be easily accessed with no fee. If I can walk into my bank or go to an ATM or log into their site and transfer the money from the card to my checking account for free, that's what I said would be fine. Anything more complicated or more costly than that shouldn't be permitted.