Paychecks are so yesterday.
Many employers prefer to use a prepaid debit card, what's commonly called a payroll card, to pay their employees. This may be convenient for them, but they cannot force you to receive your wages this way.
The Consumer Financial Protection Bureau recently issued a letter to employers reminding them of the law and warning them that the agency intends to use its enforcement power to stop violations.
"Employees have a choice," said Marla Blow, an assistant director at the CFPB. "It's the law."
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The CFPB has received complaints from employees that some companies, especially fast-food restaurants and retail stores, pay all their employees with payroll cards. Workers said they were upset about high and unexpected fees for routine transactions, such as checking the card balance and withdrawing cash.
Natalie Gunshannon used to work at a McDonald's franchise in Dallas, Penn. She asked for direct deposit to her credit union, but was told a payroll card—one loaded with fees—was her only option.
"No one should be forced to pay a fee to get their hard-earned wages," she told me. "They were taking advantage of people who cannot afford to pay these fees."
Gunshannon said she feared that once all the fees were taken out, her pay would go below minimum wage.
Shortly after quitting, Gunshannon sued the franchise owners and posted a petition on Change.org asking McDonald's to "stop paying employees with debit cards loaded with fees" and to ensure franchisees give employees more options for payment. Her petition has been signed by 300,000 people. McDonald's did not respond to our request for a comment. The owners of the franchise did change their policy and now offer direct deposit and paper paychecks to their employees.
Use of payroll cards will grow
Nearly 4.5 million U.S. workers got their wages—totaling $34 billion—on a payroll card last year, according to the Aite Group, a financial research and consulting firm. The company predicts those numbers will more than double over the next four years.
"Prepaid cards provide value for both employers and employees," said Madeline Aufseeser, a senior analyst at the Aite Group. "It's significantly cheaper than cutting a check and it also provides added safety and security." (Aite estimates that an electronic payroll payment, in any form, is $2.75 less than using a check.)
The Retail Action Project (RAP), an advocacy group that tries to improve workplace standards in the retail industry, worries that many low-wage employees don't know their rights and are being exploited.
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"The CFPB's action is a step in the right direction, but it doesn't eliminate all of the problems we're seeing with these cards," said Yana Walton, RAP's communications director. "Some large retailers sign up employees for prepaid debit cards as a default payment option, instead of letting them pick from all of the options in the beginning. So, they may incur fees before they transfer to a different payment method."