Washington State Moves To Protect Worker Paychecks From Predatory Bank Fees

CREDIT: AP
CREDIT: AP

Thrifty employers have ditched standard paychecks for electronic payroll cards, and it’s taking a significant slice out of their workers’ take-home pay. As the federal rulemaking process that will iron out many problems with the cards grinds on, lawmakers in one corner of the country appear poised to tackle the practice sooner.

Some employers have turned to debit-like prepaid cards in place of paper checks for workers who don’t want or can’t use direct deposit systems. The card processing companies turn around and chisel workers through hidden fees. Almost 6 million workers nationwide were paid using such cards in 2013.

Now, the Washington legislature is advancing a bipartisan bill to require employers to provide alternatives to the cards for workers who don’t have a bank account or simply don’t want direct deposit. While it does not specifically require employers or card providers to disclose all fees that workers may incur should they choose to get paid by card, that separate set of regulations is likely coming soon from the federal level. The bill passed the House 98–0 earlier this session and will be heard before a Senate committee on Wednesday.

The lower chamber’s broad bipartisan support suggests that Senate passage is likely, but the measure will be vulnerable to lobbying from the banking industry right up until it is passed. Lobbyists applied significant pressure when Illinois lawmakers were crafting a similar set of rules to protect employees from card fees, according to Illinois Attorney General Lisa Madigan and the New York Times. A similar measure in Iowa, which passed one chamber on a narrow 26–24 vote earlier this month, has been subject to lobbying by over 50 separate lobbyists so far, representing a range of interests including public employee unions, stage agencies, various industrial firms, and the conservative National Federation of Independent Business.

The utility and fairness of payroll debit cards are not purely black-and-white questions. Like payday loans and other products that provide vital financial services to the millions of people without bank accounts, the cards often come with predatory and abusive terms. Consumer advocates believe that proper regulation can ensure that the cards are a net positive for so-called “unbanked” Americans. “For unbanked workers, payroll cards can mean no check cashing fees, greater security without the risks of cash, access to pay despite natural disasters and the ability to make purchases over the internet and by telephone,” National Consumer Law Center (NCLC) managing attorney Lauren Saunders said in the summer of 2013. But if the fees that are associated with the cards are egregiously high or concealed from employees, or if an employer doesn’t give workers any other choices for how to get paid, the bad can quickly outweigh the good.

It is illegal to force workers to get paid through the cards, but companies and institutions sometimes blur the line between encouraging people to choose the cards and misleading them about their options. A group of McDonald’s employees in Pennsylvania sued their boss in 2013 over the cards, claiming that the workers had been told there was no alternative payment method. And the Treasury Department reportedly employed some aggressive sales tactics to cajole federal benefits recipients into signing up for prepaid cards by insinuating that traditional paper checks would put recipients at risk of losing their benefits.

The Consumer Financial Protection Bureau (CFPB) is currently taking comments on a proposed set of nationwide rules for prepaid debit cards of various types, including payroll cards. Under the rules, any organization that makes payments using the cards would have to disclose all fees and rules on the internet, and tell recipients that they may receive their money another way if they choose. The proposed rules have earned praise from the NCLC, which simultaneously applauded the CFPB proposal and urged it to go further in a long letter to the agency on Monday.

The scourge of concealed transaction fees that pinch low-income workers and families is broader than just payroll debit cards, of course. In the wake of the Dodd-Frank financial industry reforms that curtailed fees for standard debit card transactions, banks got more aggressive about marketing alternative payment cards like these for a wide variety of payment processing services. JP Morgan Chase notoriously charged users a dollar just to check the balance on a card and $5 to actually withdraw cash from it. Giant banks administer public benefits like unemployment insurance in many states, and have used that position to siphon off significant revenue through both traditional ATM and overdraft fees and more insidious ones like a $1.50 charge for calling customer service more than once a month.