Prepaid cards can be helpful for the growing population of low-income workers who do not keep bank accounts in which to deposit checks. However, banks are taking advantage of this group through fees for withdrawals, paper statements, and card replacements. These charges pile up quickly and can push employees’ wages below minimum wage. One McDonald’s worker who makes $7.25 an hour told the Times he spends $40 to $50 a month on his JP Morgan Chase card’s fees. Chase cards charge users $1 just to check their balance, $5 for in-person withdrawal, and include several other fees. There can also be hefty “inactivity” fees if the user does nothing.
While many companies have simply eliminated the options of direct deposit and paper checks, others aggressively market the cards and fail to mention other options. Banks promise companies that they can save up to $21,000 a year by switching to cards. However, these cards have also become cash cows for banks that lost billions due to new regulations prohibiting certain deceptive fees on other cards and transactions. Payroll cards were not covered in the Dodd-Frank bank reform bill and have exploded in its wake. Banks are trying to recoup about 30 to 50 percent of profits from the now-banned fees from payroll card fees and other kinds of transactions. A firm interviewed by the Times estimates $34 billion was loaded onto 4.6 million payroll cards last year and is expected to reach $68.9 billion on 10.8 million cards by 2017.
Workers filed a class-action lawsuit in June challenging this practice at a McDonald’s franchise in Pennsylvania for violating state law and pushing wages below the federal minimum. The lawsuit points out that managers are paid by regular no-fee direct deposits, while hourly workers are saddled with cards and their associated fees.
Low-wage workers aren’t the only ones getting caught in the Catch 22 of prepaid cards. A recent investigation found that the U.S. Treasury Department pushed employees onto prepaid cards to receive their federal benefits, rather than deposit the benefits directly into their accounts. The Treasury promised to give card issuer Comerica Bank $5 per card, adding up to a windfall of more than $22 million in taxpayer dollars. Additionally, 41 states use prepaid cards to distribute unemployment benefits, and some even violate federal requirements by not offering the option of direct deposit.
Transactions are often fudged and mishandled, as a ThinkProgress analysis of Virginia’s tax refund prepaid cards found. Taxpayers were charged exorbitant fees to access their refunds, experienced system errors, and were told they would have to pay a fee if they phoned for assistance.
Low-wage workers already have to put up with rampant wage theft and abusive conditions while being denied a livable wage. The myriad ways companies extract money from low-wage employees have sparked strikes and rallies all over the nation.