The practice of issuing payroll on prepaid cards has substantially grew in the past 5 years. Companies such as McDonald’s and Taco Bell are known to pay some employees this way. Too bad, many employees are against the idea. An ex-McDonald’s employee actually sued the fast food chain because she did not want her wages placed on a prepaid card. Besides having a prepaid card forced on you, many people believe this process systematically weakens “already” disadvantage communities. Prepaid cards are unsafe for vulnerable citizens who have hard time as it is financially.

Well, Senate Bill 88 is currently in the House and is likely to be passed. If passed, U.S. companies will be allowed to pay employee wages via prepaid cards. The Consumer Financial Protection Bureau (CFPB) expects that the passage of this legislation will push more employers to do the same. Advocacy groups like Georgia Watch isn’t too thrilled about the idea. But, understands that if Bill 88 passes, there has to be some rules set by the U.S. government that will safeguard employees. Here are the rules they are proposing:

  • Protect access to the courts by banning forced arbitration for prepaid products.
  • Hold prepaid cards to the same standards as credit cards with regards to fees.
  • Ban all overdraft fees and declined transaction fees.
  • Extend the deadline for disputing transactions and errors to 120 days minimum.
  • Ensure that ATM balance inquiries are free for consumers.
  • Disclose all fees associated with the prepaid card before and after issuance.
  • Provide both students and employees the opportunity to opt-out of receiving funds via a prepaid card in favor of direct deposit or paper check.
  • Require that prepaid card companies hold funds in custodial accounts that have deposit insurance, protecting consumers from the company’s creditors.

If these rules are attached to Bill 88, this will help employees maintain their financial sanity. However, companies and banks will still have the upper hand. Why?

1) Prepaid cards allow companies to save money. According to the NY Times, a company with 500 employees can save up to $21,000 a year in payroll costs. Prepaid cards eliminate costs associated with dated methods of issuing wages (i.e. printed checks, direct deposits).

2) Banks love prepaid cards because they are unregulated. Banks can create or increase fees associated with the card. For instance, some banks charge a $7 inactivity fee, $1.50 to transfer money from the card to a checking account, $.50 to make a purchase using the card, and $2.25 out-of-network ATM fees.

Prepaid cards will put employees in a very vulnerable place. Companies that implement this practice will hopefully make prepaid cards an option and not mandatory.

 

WHAT DO YOU THINK? SHOULD EMPLOYERS PAY WAGES VIA PREPAID CARDS?