​The hidden troubles with payroll cards

Getting paid can be an expensive prospect for low-wage workers.

Payroll cards, a type of prepaid debit card that employers can load a worker's pay onto, are gaining popularity with some employers and their workers because the cards provide automatic access to that pay. Checks don't need to be mailed, saving the employer some money, and employees without bank accounts don't have to worry about check-cashing fees or other hassles.

But the cards come with their own pitfalls, as highlighted in a recent report from activist group Restaurant Opportunities Centers United. While the cards provide convenience, they can carry serious setbacks -- and hefty fees -- for the unwary or uneducated.

Its survey of about 200 employees at Darden (DRI) restaurants such as Olive Garden and LongHorn Steakhouse found that three-quarters had paid ATM fees to access their wages, while about two-thirds said they weren't informed about the card's fee structure.

"For many workers it can be a very convenient way to get paid," said Mike Rodriguez, who wrote the report for ROC United. "Some workers experience it as a great option, especially those without traditional bank accounts. But some aren't given the information to make an informed decision, or use the cards in an optimal way. There are a lot of issues that come up that wouldn't when you have a traditional bank account."

According to the Federal Deposit Insurance Corp., almost one out of four American households is either unbanked -- meaning they don't have a traditional bank account of any kind -- or underbanked, meaning they may have an account but rely on alternative financing such pawn shops. A top reason for why people say they skip the bank is "high or unpredictable account fees," the FDIC found.

Ironically, that's just what some payroll cards are delivering to unwitting workers. Check your balance at an ATM outside the network? That's a 75 cent fee. Is the card declined at a point of sale? That can be another 50 cent fee. Over one month, such fees can add up and take a hefty bite out of a low-paid worker's paycheck.

At some companies, workers who use payroll cards are getting hit with an average of $20 in fees per month, according to a 2014 report from the New York State attorney general's office. About three out of four workers with payroll cards are hit with at least one fee, the study found, citing data from employers who provided detailed information about the cards and fees.

Despite the problems with the cards, they're projected to continue growing in popularity. About 7.4 million workers used the cards last year to receive their wages, a number that's forecast to reach 12.2 million employees by 2019.

Payroll cards save employers money because no paper or postage is required, eliminating some of the cost. A payroll card deposit costs about 35 cents, instead of the $2 it requires to issue a paper check, for instance.

Darden spokesman Rich Jeffers said while the cards do save money for the corporation, they're offered to workers in order to provide easier access to their wages. He said the company hasn't received complaints about the cards, and that roughly half of its employees opt in for payroll cards, while most of the other half receive direct deposit.

"When we bring on new employees, we make sure they are completely aware of the fees that can be incurred," he said. "We have an employee handbook, and we walk them through it step by step." He added that out-of-network fees are clearly communicated to workers.

Employers should negotiate on behalf of their employees to get better deals from payroll card vendors, which profit from the fees charged to their clients' employees, said Bankrate.com chief financial analyst Greg McBride.

"It goes along with employee benefits," he said. "It behooves employers to offer the most beneficial" terms to their workers.

Some good news is coming for Darden workers. Starting on June 1, their payroll cards won't charge 50 cents if declined at a point of sale, Jeffers said.

Financial products "all have their uses, and work well for somebody," said Bankrate's McBride. "As with every financial product, there's a cost of delivery and of providing it. Somebody along the chain will have to pay that cost."