N.Y. AG Investigates Payroll Card Fees (July 3, 2013)
July 3, 2013
New York’s attorney general is looking into prepaid payroll card programs at some of the state’s largest employers, following a report in the July 1 New York Times, which characterized payroll cards as laden with fees. Attorney General Eric Schneiderman has sent letters to about 20 employers seeking information about their programs, including fees associated with the cards and whether employees are free to easily opt out of the programs in favor of receiving pay via paper check or direct deposit, according to today’s New York Times.
Schneiderman’s office reportedly is trying to determine if the employers have violated state labor laws; New York requires employees to give their explicit consent before companies can begin paying them via payroll card. Schneiderman’s letter requests employers turn over documents that prove employees have given consent before being enrolled in the programs. His office also is investigating whether employers are forcing the use of payroll cards as a condition of employment, along with possible fee disclosure violations, according to the New York Times report.
Although prepaid payroll programs may include fees for out-of-network ATM transactions and/or card replacement fees, the cards are less expensive to use than check cashing services, which are the only alternative for employees who don’t have a bank account, say industry observers. “Payroll cards are a much lower cost to employees and offer more security than a paper check,” notes Madeline Aufseeser, senior analyst at Aite Group. “For employees who don’t have a checking account, check cashing fees can be very steep and far more than any fee charged on a payroll card,” she says, adding that federal law requires employees be given a way to withdraw all of the funds on a card—to the penny—with no fee. Programs often include free cash back at the retail POS as well.
In a blog post yesterday, Patrice Peyret, CEO of prepaid card provider Banking Up, formerly Plastyc, noted that the industry has made efforts to ensure that prepaid products—including payroll cards—are useful and cost-effective for consumers. Peyret cited the Center for Financial Services Innovation’s Compass Principles and the Consumer Financial Protection Bureau’s Project Catalyst program as examples of initiatives to better serve and protect consumers who use prepaid cards. Peyret’s post was a response to the initial story in the New York Times this week that was critical of prepaid payroll card programs.