Prepaid Wage Cards Draw Senate Scrutiny
High fees associated with the ATM-style cards that some employers give workers in lieu of paychecks have lawmakers looking into the practice, but the Network Branded Prepaid Card Association says it's encouraging self-regulation.
Prepaid wage cards, which work like ATM cards, are proving popular among some large businesses as a way to pay employees. But after reports emerged that low-wage earners have to pay high fees to use the cards, the Senate started asking questions.
Meanwhile, an association that represents the prepaid card industry says efforts are underway to encourage stronger best practices in the industry. More details:
The issue: Last month, The New York Times published a story reporting on the rise of prepaid wage cards as a form of payment for employees in low-wage jobs at large national companies such as McDonald’s, Walmart, and Home Depot. But some workers say they must pay extra charges for checking their balance, withdrawing money, or even card inactivity—fees that cut into already-meager paychecks. And employees who don’t want the cards say they face a mountain of paperwork to switch to a more traditional pay method like a check or direct deposit.
The concerns: In a letter sent to the heads of the Consumer Financial Protection Bureau and the U.S. Labor Department, 16 Democratic senators—including Elizabeth Warren of Massachusetts, who oversaw establishment of the CFPB before being elected—asked for an inquiry into the practice, citing The Times story. “Perhaps even more worrying than the fees associated with these cards is the possibility that employees might be coerced or inappropriately pressured into using them in the first place,” the letter stated. “Every employee should have the right not to use such a card and to instead receive their pay via a paper check or direct deposit.”
In an interview with The Times, Sen. Joe Manchin (D-WV) noted that employees may be stuck with undesirable and unfair options that chip away at the money they’ve earned. “Americans work hard every day, and their pay must be protected from high fees, unfair choice, and improper commissions,” he said. “It is clear that prepaid payroll cards must be investigated further.”
Industry response: In the face of this new scrutiny, the Network Branded Prepaid Card Association (NBPCA) says it has encouraged its members to stick to a series of best practices for prepaid wage cards, including proper disclosures, free access to balance information, and adopting consumer protections on cards similar to those on other electronic banking methods such as direct deposit. One thing it does not recommend, however, is limiting fees on the prepaid cards. Instead, the association hopes to encourage consumer choice.
“We oppose legislative or regulatory proposals that place limitations on the types or number of fees that can be charged. Such restrictions serve to limit product and feature choices for consumers,” the group wrote in its position statement. “Instead, we support disclosures that will allow consumers to shop, compare, and choose the product and features that best meet their needs.”
Judith E. Rinearson, a lawyer for the association, told The Times that NBPCA encourages members to clearly inform users of any fees associated with the cards.
“We strive to ensure we set a high bar with our best practices for our members,” she told the newspaper.