NYPIRG Consumer Protection Project

Bye Bye Paycheck! ( 31) — Payroll Cards

A relatively new entrant to the pricey plastic derby, payroll cards, are essentially 'plastic paychecks.' It's another step toward a cashless society, but there's a debate about who ultimately benefits ‹ employer or employee ( 32). A payroll card is a card that allows you to access the money from your paycheck using a card that looks like a bank debit card. The money is held in an account, and you withdraw it or spend it by using the card.( 33)

Currently, about 2.2 million payroll cards are in use, double the number in circulation a year ago ( 34). By next year, analysts estimate, there will be 3.5 million cards in use, and expect that number to double by 2006. The list of companies offering payroll cards includes such well-known corporate names as United Parcel Service Inc.; Blockbuster Inc.; Sears, Roebuck and Co.; Coca-Cola Co.; McDonald's Corp.; and Domino's Inc ( 35).

Introduced in the late 1990s, payroll cards have taken off in the past two years, especially as the two major credit card companies, Visa and MasterCard, started offering their own branded versions. That enabled workers to cash their pay wherever major credit and debit cards are accepted ( 36). For companies, the advantage is clear. Electronically transferring funds to employees is up to 75% cheaper than issuing checks. However, for employees, payroll cards can come loaded with fees for any number of transactions ‹ such as opening or maintaining an account, or withdrawing money from an ATM ‹ although typically the first withdrawal of each pay period is free. Fees for balance inquiries, adding money or making a purchase have also cropped up. Consumer Reports estimates a payroll-card holder may fork over $164 a year in fees. ( 37)

According to Consumers Union, there are many kinds of fees to watch out for. Fees may include:

a monthly fee,
a fee after a certain number of transactions,
a fee for using the card at an ATM,
a surcharge to the ATM owner,
a POS fee for use at a point of sale such as a store,
a fee for not using the card for a period of time (inactivity fee),
a fee to replace the card,
a fee when funds are put on the card account (load fee), and
a fee to get your money back by check if you don¹t like the card.

One payroll card provider, according to Consumer Reports, even charges consumers a fee per minute to speak to customer service.

Fees make a big difference in whether or not a payroll card is a good deal for employees. A payroll card usually will cost less than using a check casher, but often cost more than maintaining a bank account. Many payroll cards offer just one ATM withdrawal per pay period without a fee. Some employers pay all or part of the payroll card fees. Employers also can negotiate with the payroll card company to restrict the number and type of fees. Employees should ask their employers for a list of all fees before agreeing to a payroll card. ( 38)