Employees Forced To Accept Wages via Prepaid Card with Unavoidable Fees

By on July 1, 2013

Many employers are now using prepaid cards to pay workers instead of issuing a paper check or wiring the money through direct deposit.  The prepaid cards act like debit cards which can be used at an A.T.M. however these cards sometimes come with a handful of fees, the New York Times reported.

For instance, one debit card provider charges a fee of $1.75 to make a withdrawal from most A.T.M.’s, $2.95 for a paper statement and $6 to substitute a card.   Some employees may have to pay $7 in inactivity fees for not using the cards.  As a result of the fees, some employees may earn less than the minimum wage, thus violating state and federal regulations with respect to minimum wage laws.

Taco Bell, Walgreen and Wal-Mart are a few well-known companies that provide prepaid cards to their employees.  In 2012, $34 billion was put on 4.6 million active prepaid payroll debit cards, according to the research firm Aite Group.

Card issuers like Bank of America, Wells Fargo and Citigroup claim the cards provide a more efficient and cost-effective method to pay employees.  Interestingly, these card issuers provide financial incentives to companies to use the prepaid debit card system.   In one instance, the New York City Housing Authority receives one dollar for every employee it registers for Citibank’s payroll cards, according to a contract reviewed by The New York Times.

Some of the charges are essentially impossible to avoid, employees say. A Victoria’s Secret employee, Bintou Kamara, told the Times it cost her $1.50 to transfer money from her Citi payroll card to her checking account.  Other employees were fined $25 in overdraft fees.

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