Payroll Debit Cards— Less Choice, Lower Wages

Bank of America’s new $5 monthly debit fee, unveiled Friday, sparked howls of protest from furious bank customers now threatening to walk away to more consumer-friendly banking options. No one knows exactly how many will follow through on the threat, but according to one poll, a $5 monthly fee will drive 66% of debit users towards alternative methods of payment—cash, credit cards, or “other.” Agree or disagree with the 66%, but at least everyone can agree that it’s good consumers can freely decide to spend however they want and bank wherever they choose, right? Wrong.

Thanks to unaffordable fees, credit checks and other obstacles, big banks have shut out about a million California households from access to any banking services whatsoever. These “unbanked” workers, unable to receive direct deposit, have in recent years found employers replacing paper paychecks with mysterious “payroll debit” cards—electronic cards that charge massive fees only a banking lobbyist could love. Employers issue cards directly to workers, wages are loaded onto an account managed by the bank, and every payday, the nickel and diming begins anew.

Workers unable to afford paycard fees don’t get to just take their business elsewhere. Unlike typical bank customers, these workers are simply stuck with whatever bank the employer chooses, and this lack of consumer choice creates a market distortion with a predictable result: sky-high fees that no retail banking consumer would ever accept.

Here’s a quick sample of some actual fees California workers can face under these contracts: $15 per month whether a worker uses their debit card or not. Every point of sale transaction costs an additional $2 and every in-network ATM withdrawal claims another $2. Replacement cards are $35, and if fees wipe out the last of a worker’s wages, the bank can take a $45 “negative balance” penalty. Even balance inquiries are $.50 and calls to a live operator cost $3 each.

For the vast majority of us, charges this unreasonable would be more than enough to propel us into the arms of a credit union or community bank less focused on punitive fines and high fees.  But the 8% without bank accounts live and work without this alternative. These employees choose from the following options: paycard issuers, equally predatory check cashing services, or a strictly cash-based existence. Fortunately, legislation offering a fourth possibility recently passed the legislature and currently awaits action from Governor Brown.

SB 931 (Evans) would authorize payroll cards, but only when the cardholder agreements meet certain conditions. For example, the card contracts couldn’t charge fees to load a payroll card or participate in the program. Card contracts will also no longer be allowed to charge workers for access to online account information and transaction histories. SB 931 guarantees an employee’s free choice between a paper check, direct deposit, or payroll card, and establishes the right of a payroll card-compensated worker to withdraw all wages once with no fees. Workers under SB 931 are also allowed four free in-network withdrawals, one free out-of-network withdrawal, and two free point of sale transactions. Modest protections, to be sure, but even these minimal standards would mean major help for minimum wage and low-wage workers.

Though millions of California workers need SB 931’s protection, the issue’s prominence and this bill’s reach extend far beyond California. Nationwide, all eyes are on our state to watch whether responsible regulation and a pro-worker Governor can beat back lies and threats from dozens of banking industry lobbyists. A victory here would mean renewed efforts elsewhere to protect the wages and living standards of America’s most vulnerable workers.  

The Governor here faces a clear choice—unlike workers paid on payroll cards. On one side is an industry that’s essentially declared war on the middle class, on the other is what’s left of a middle class ravaged by years of that industry’s greed. On one side are the world’s richest banks and their empty threats to abandon the gigantic California payroll card market, on the other are very real workers facing very real threats of bankruptcy, foreclosure, or worse, ironically from the hands of those very banks. Governor Brown, we’re counting on you to stand up to bankers bleeding hard earned wages from the workers on which our economic recovery will depend. We’re counting on you to sign SB 931.

Click here to send a message to the Governor in support of SB 931.