New York Attorney General Eric Schneiderman is supporting a new bill in the state legislature that would regulate the use of payroll cards. Under the proposal, employers would have to offer other payment options and consumer protections. They also would have to disclose clearly what fees are associated with the prepaid cards and ensure that workers have access to at least one ATM network allowing free withdrawals.
Regulators and consumer advocates are increasingly concerned that employers are using prepaid payroll cards to unfairly target workers who have no other way of collecting their wages. Critics say the fees required for their use can severely cut into the paychecks of low-wage employees. Federal law forbids employers from requiring that workers use a specific bank; but states vary in more specific regulations around payroll cards, and some have no guidance on the issue at all.
A new report by Schneiderman's office identified nearly 40 major companies using prepaid cards that significantly reduced their employees’ take-home pay. Of those, 40 percent did not give workers the option to receive a direct deposit or check instead. Employers often prefer payroll cards because they are cheaper to issue than paper checks. But consumer advocates say employees often are charged between a few pennies to several dollars for checking the balance on a card or for card inactivity. Such small amounts can add up quickly.
Employees received $42.8 billion last year on nearly 6 million prepaid cards, according to Aite Group. Those numbers could reach 10.8 million cards and nearly $70 billion by 2017. Nearly 10 million American households lack a bank account and often use expensive financial instruments, such as check-cashing services, to obtain their wages.