Paying employees through prepaid debit cards that incur fees when workers try to withdraw their cash is illegal in Pennsylvania, a judge ruled Tuesday. The lawsuit targeting a McDonald’s franchisee in the eastern-central part of the state has already prompted a powerful Wall Street bank to voluntarily give money back, a lawyer for the plaintiffs told ThinkProgress on Wednesday.
The case began in 2013 after a woman named Natalie Gunshannon sued a couple who own and operate multiple McDonald’s franchises in the state. The owners, Carol and Albert Mueller, had been using payroll debit cards provided by JP Morgan Chase rather than traditional paychecks or direct deposit payroll systems. After Gunshannon filed suit, the couple began offering direct deposit and traditional checks as alternatives to the payroll cards, which had previously been workers’ only option.
Gunshannon and other workers faced a $1.50 charge every time they used an ATM to access their wages, and a $5 charge for withdrawing the money over the counter at a cash register. Where a worker who misplaced a standard paycheck would be able to get a replacement check, the JP Morgan Chase prepaid cards charged a $15 replacement fee if lost or stolen. Paying bills online with the card meant spending an additional 75 cents on bank fees, and merely checking the balance of a card triggered a $1 fee.
The Muellers’ hourly workers were charged such fees nearly 47,000 separate times from the fall of 2010 to the summer of 2014, according to an expert witness in the case. That works out to roughly 20 separate fees per person in the class over a 45-month period.
Store managers, meanwhile, were offered direct deposit forms to receive their pay without facing the card fees.
When Gunshannon’s claim gained class action status earlier this year, all 2,380 hourly workers at the Muellers’ chain were able to join the case. Each of those workers would be entitled to a $500 damages payment plus the reimbursement of all the fees they were charged by the payroll cards, should the Muellers’ appeal of Tuesday’s ruling ultimately fail. In that case, the couple would have to pay out roughly $1.2 million in damages, unless they are able to strike a settlement with the workers’ attorneys.
Because the class action decision raised the stakes so significantly, that May ruling was in some ways a bigger deal than Tuesday’s finding that the Muellers had broken the law. The class status ruling in May certainly got Chase’s attention, plaintiffs’ attorney Michael Cefalo told ThinkProgress.
“Our lawfirm became bombarded with telephone calls. All of the class members were getting a form letter from Chase saying, we have decided to refund you all of the fees you have paid Chase,” Cefalo said. “We were shocked.” The voluntary payments from Chase ranged from as little as a penny to as high as $148, the attorney said. A call to the bank’s press office about the payments was not immediately returned.
The checks do little to shield the Muellers from the potentially backbreaking damages payments mandates by Pennsylvania’s Wage Payment and Collection Law. And while the money is nice, Cefalo said, it doesn’t erase what the McDonald’s franchisees and Chase did to his clients.
“Say I come up to you and I have an armed robbery, and then I say ‘I’m sorry, here’s your money back.’ I still committed a robbery,” he said. “You still paid ’em the wrong way.”
The Muellers’ attorneys told Law360 they intend to appeal Tuesday’s ruling. They may yet succeed in persuading a different judge that the payroll cards fit the state’s definition of legal payment. In Tuesday’s decision, Judge Thomas Burke himself acknowledged that the relevant state law was written in 1961, and the technological progress in payments technology since then may cloud the case. He also asked the state’s Department of Labor and Industry to issue a formal administrative position on whether or not payroll cards that charge user fees are equivalent to cash or checks. The agency has previously said the cards are legal payment, but only in a non-binding advisory letter, according to Law360. A call to the agency for comment was not returned.
Payroll cards such as those the Muellers used are legal in many states, despite the fees that eat into workers’ wages. A handful of state legislatures are weighing new rules to govern the use of such cards, including Pensylvania itself and Washington state. The Consumer Financial Protection Bureau is working on regulations for a wide range of different prepaid debit cards including payroll cards like those in the Mueller case. The agency has warned employers that they must make alternative forms of payment available for any worker who doesn’t want the cards, and is currently soliciting comments on a proposed federal regulation.
With millions of Americans lacking access to banking services, the cards can be an important and beneficial tool for workers so long as they come with the right safeguards, the National Consumer Law Center has argued. Close to 5 million people were paid through such cards in 2012, a number projected to double by 2017. Similar prepaid debit cards are also being used in some cases to pay public benefits such as unemployment insurance. The banks that provide the cards and charge the fees are trying to recoup some of the profit they lost when Dodd-Frank regulations curtailed their old business practices involving fees for standard debit cards.