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The Modern Company Store

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We think of the company store as a relic of the Gilded Age, of one-company towns dominating the lives of their workers. We left this behind with the New Deal, right? Well, we did leave it behind but like the rest of the Gilded Age, a new form of the company store is coming back with a vengeance, with debit cards that force workers to pay high fees to use their hard-earned wages.

This population — people who tend to use few, if any, bank services — is swelling. About 10 million households in the United States do not use a bank at all, up from nine million four years ago, according to estimates from the Federal Deposit Insurance Corporation. And 24 million households that do have a bank account still use expensive financial services like prepaid cards, the agency said.

For banks that are looking to recoup billions of dollars in lost income from a spate of recent limits on debit and credit card fees, issuing payroll cards can be lucrative — the products were largely untouched by recent financial regulations. As a result, some of the nation’s largest banks are expanding into the business, banking analysts say.

The lack of regulation in the payroll card market, while alluring for some of the issuers, can potentially leave cardholders swimming in fees. Take the example of inactivity fees that penalize customers for infrequently using their cards. The Federal Reserve has banned such fees for credit and debit cards, but no protections exist on prepaid cards. Cards used by more than two dozen major retailers have inactivity fees of $7 or more, according to a review of agreements.

Some employees can also be hit with $25 overdraft fees, called “balance protection,” on some of the prepaid cards. Under the Dodd-Frank financial overhaul law, banks with more than $10 billion in assets are barred from levying overdraft fees on customers’ checking accounts.

Many fees are virtually impossible to dodge, some employees say. A Victoria’s Secret employee, Bintou Kamara, for example, said it cost her $1.50 just to transfer money from her Citi payroll card to her checking account.

Let’s be clear–debit cards replacing paychecks should be an illegal practice and it is an outrage that it is not illegal. Wages should be paid in one way–with a check for the full amount.

And since no one can trust banks anymore and there’s no way for many workers to use their money, we might as well go back to another old staple of the Gilded Age economy:

But she grew tired of being charged $1.75, in addition to the A.T.M.’s fees, to withdraw cash. After a tip from a co-worker, Ms. McLemore realized she could reduce her charges if she took out all her wages once a month. Now, supplied with one of the most modern banking products, Ms. McLemore has a decidedly old-fashioned way of handling her pay: it is stacked in a shoe box in her closet in $10s and $20s.

Can a political slogan built around not being crucified upon a cross of debit card fees be far behind?

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  • cs

    The article quoted the argument that a worker without a bank account is better off paying card fees then paying check-cashing fees. I suppose that is true as far as it goes. Large companies, at least, ought to be willing to cash their employees’s paychecks, that would solve a lot of these problems.

    • Ann Outhouse

      It would take about ten lines of code in the bank’s software to charge the ATM fees and so forth back to the employer. If the code isn’t already there.

      This isn’t about paper vs plastic. It’s about banks fucking people over.

    • rea

      It used to be that if somebody gave you a check written on Bank X, Bank X had to cash it without charging the payee a fee. Charging a fee to cash a check drawn on that bank was the equivalent of dishonoring the check. That still ought to be the law. One of the reasons our economy is so screwed up is we let companies sieze economic choke points and charge tolls for passing them.

      • Anna in PDX

        Yes, I found out the other day it was not still like this. When did this change and what was the rationale? I just don’t understand why banks are allowed to pull this crap. If it’s their check they ought to cash it. They accept deposits with no problem don’t they?

    • The check cashing fee is one hit based on the amount of the check. You takes your money and go. Here the person could be hit with reductions in multiple ways. Deductions based on the failure to use the card? Obscene.

    • DrS

      About 10 years ago, I worked for a bank. Had a coworker who also had his mortgage with the bank and his checking account.

      He got hit with an overdraft AND a late payment fee on his mortgage. Why? Cause the bank we worked for put a 10 day hold on his paycheck.

      Yeah, the paycheck they wrote him.

      Although, to be fair, I wouldn’t trust them either.

    • Malaclypse

      Large companies, at least, ought to be willing to cash their employees’s paychecks, that would solve a lot of these problems.

      The payroll I run is about $150K/week. The idea of having that much cash in my desk scares the bejesus out of me.

  • Erik, what’s the difference between a payroll card (in theory, not in this practice) and direct deposit of your paycheck, which is what I have? So long as you get a reconciliation of your salary, I don’t really see a problem here.

    Now, the *fees*, there you have a point.

    • If there were no fees involved, there wouldn’t be a meaningful difference. But if there were no fees involved and thus no way to profit, companies would be unlikely do this.

      • rea

        Isn’t it the banks and not the employers who are charging the fees?

        • It basically transfers the expenses of a payroll department from the employer to the employee.

          • Well, the solution is to interpret the FLSA to require that the minimum wage is net of any banking fees that the employee cannot reasonably avoid. Put it back on the employers. They are presumably saving money by paying in this fashion, so they should have to eat the fees.

            • It’s something, except that I think it needs to be broad enough so that the $12 an hour workers aren’t paying it either.

              • Well, once you get above minimum wage, it’s impossible to tell the difference between a lowered payroll expense that the employer bears and one that the employee bears. (Especially since the “sticky wage” theory says that employers will do whatever they can to avoid lowering nominal wages.)

                That isn’t to say you are wrong; only that if you make the employer eat this cost, it may just squeeze air out of a different part of the balloon (other than in the case of minimum wage workers).

          • bk

            Not only that, in the NYT article it said that some article on the subject it said that some employers were given financial incentives to sign employees up for these products.

          • Malaclypse

            It basically transfers the expenses of a payroll department from the employer to the employee.

            Okay, since I run a payroll department, so I know about this. It does not at all transfer the costs of a payroll department onto the employee. Not even kind-of sort-of.

            1) No small-to-medium employer in their right mind is not using a third-party payroll provider, usually ADP or Paychex, although we use a local provider.

            2) Local provider charges us a base processing fee, plus a per-transaction fee. We pay slightly less per transaction for live checks than we do for either direct deposits or pay cards, for reasons that I can bore people with if they are interested.

            3) Our pay-card provider does not charge withdrawal fees, although employees need to use in-network ATMs to avoid surcharges, in pretty much the same way my debit card requires me to stay in-network. I do understand other pay-card systems may not follow this system.

            4) Pay-cards are better than check-cashing places, which are evil. Like it or not, I can’t force people to open accounts at local credit unions.

            5) This is part of how banks in general fuck over the poor, but this is banks getting fees, not employers. There are laws, lots of them, about what employers can take out of employee checks, and this is not something that employers can legally do.

            • The argument made in the writing about this point is basically that the cards themselves save on corporate payroll expenses, allowing companies to slash their payroll budget and thus de facto transfer the costs onto the workers. Obviously, I don’t know how true that is.

              • Malaclypse

                Obviously, I don’t know how true that is.

                I’ve run payroll for various companies for over a decade, and I’ve never once seen a pay card with a lower transaction cost for the employer than a live check would have.

                That isn’t to say that there may be some debit card companies that are basically scams. I’d be amazed if there were not – this is America, and banksters gotta grift. But I’ve worked with both of the Big Two payroll companies, and two smaller ones, and I’ve never yet seen a scam provider.

                I’ve read a lot of payroll proposals, and a lot of itemized bills, and never once seen any financial incentive to force people to use pay cards.

                If the businessperson is an idiot, however, they are too stupid to reconcile payroll bank accounts [*], as (for people to stupid to set up payroll properly) live checks become a reconciling nightmare. I can picture stupid, stupid owners being sold on the idea that “Use our paycards, and you won’t ever need to reconcile your bank account again.”

                But even then, the grift is by the payroll company and/or the bank, not the business. The business is paying for the privilege of the bank ripping off the employees.

                * I was stunned when I realized just how many genuinely small businesses never reconcile bank accounts.

    • Joshua

      I think the fees are the issue.

      • I just wanted clarification on that point.

    • FridayNext

      And the fees are the whole point of the cards from the employer and card issuer stand point. I read an article AOL (I know, I know)that had this lovely quote from a director of sales from a payroll card issuer:

      “As Benson explained: “Our paycard is designed to be completely free to the employer, and virtually free for the employee.”

      The reason companies love using these cards so much, it seems to me, is that it allows them to shove off their payroll expenses off on to their employees.

      • Hogan

        What a useful word, “virtually.”

        • Hanspeter

          Like in Superman III, taking a tiny bit from every transaction adds up. Except they’re not taking hundredths of a cent, but hundreds of cents. They are 10,000 times more efficient than Richard Pryor.

          • Anonymous

            Underrated movie, actually.

      • daveNYC

        Even for corporate PR BS speak this doesn’t sound very good.

    • AR

      In the story they specify that employers are discontinuing direct deposit (most long ago ended paper checks). I first started seeing this years ago with my clients when their employers made them pick direct deposit or a card (which is now standard, even unemployment benefits work that way around here). The change the story highlights is that even for the employs with a normal checking account, they have to eat the fees of the card.

  • fka AWS

    For banks that are looking to recoup billions of dollars in lost income from a spate of recent limits on debit and credit card fees, issuing payroll cards can be lucrative

    How about being happy with the income they have instead of trying to fuck over someone else? I know, novel concept.

    FSM, I hate these motherfuckers.

    • DrS

      I think this is what the banks and employers are trying to say: be happy with the income that you have.

  • Ann Outhouse

    debit cards replacing paychecks should be an illegal practice

    No, the fix is to charge the fees back to the issuer (the employer) and legally ban overdrafting on debit cards, fining the bank — not the cardholder — if the card is overdrawn.

    Paper checks are not the fix. These same workers have few options for cashing a check, either, and have to pay a fee to do that, sometimes an exhorbitant one depending on their access to check-cashing services. And then they’re carrying cash around, making them easy targets for theft, especially by other family members.

    If a debit card is lost or stolen, the liability to the cardholder can also be set by law. There’s never going to be any such protection against having one’s cash stolen.

    • Sockie the Sock Puppet

      Indeed, I think the paycheck card is a marginal improvement over the old paper-paychecks-to-the-unbanked model, which left people vulnerable to some very large rip-offs rather than many, many small-to-midsize ones.

      The solution is to make paycheck cards legally distinct from Barns and Noble gift cards or other such prepaid cards. There need to be protections for people so that they don’t get ripped off spending their hard-earned money. Of course, then they won’t be so lucrative to the banks and not free to the employers, but I bet they’d wind up still being cheaper than other payroll options.

      Which is not to say that the Loomis Option shouldn’t be deployed on the bankers who are making millions from paycheck cards at present. But if the right protections are in place — and a pony, I guess — they could be a step forward.

  • somethingblue

    Chuck Harris, the company’s president, says it attracts companies by offering convenience to employees and cost savings to employers.

    “We built a product that an employer can fairly represent to their employees as having real benefits to them,” he said.

    Note the difference between that and “We built a product that has real benefits to them.”

    Frickin’ weasel.

  • Mark Jamison

    And lest anyone wonder why the largest banks are some of the most vociferous lobbyists on postal issues, it is not because they mail millions of credit card solicitations and want cheap rates.
    The banks absolutely do not want any postal solutions that may involve restoration of the postal savings bank that worked so well here until 1967 and has worked wonderfully in other countries like Japan. Better yet the banks would actually like to see the collapse of first class mail and are ready with some wonderful alternatives that would charge people for the privilege of receiving and paying bills – they certainly don’t want a postal electronic bill presentment and payment system.
    Finally, the ultimate privatization of the postal money order system would eliminate a relatively cheap and reliable checking system for those in lower income groups.

    • Mark Jamison

      Banks, payday lenders, and others in the business of extorting the consumer are licking their chops at the demise of the Postal Service.

      • The sad thing is, it’s exactly these sorts of ancillary services that could save the postal service.

        Physical mail delivery really is obsolete. Package delivery isn’t, but the USPS has competition there and can’t charge monopoly prices or cross-subsidize. (And no, even though the pension prepayment law is outrageous, the USPS would still be losing money without it and every other postal service in the first world is also losing money on mail due to lessened demand.)

        But if we got the USPS into postal banking, that could keep the thing going and provide a useful service for low income Americans.

        • Mark Jamison

          Physical mail delivery is hardly obsolete and is relied upon by large parts of the country. The initial volume losses were attributed primarily to the Great Recession not electronic diversion. Is it a declining part of the picture – definitely but the predictions of its demise are overblown. Also, given the fact that postal leadership has been actively working to undermine the efficacy of first class mail it’s hard at this point to tell what the situation would be with a less destructive management.
          The RHBF payments represent about 80% of the losses over the last several years. A good part of the rest can be attributed to the OWCP system which drains money out of the Postal Service. Operations have been at a basically break even point.
          FedEx and UPS are using the Postal Service for last mile package delivery. The situation there is a bit more complicated then you indicate. Be sure though that if the Postal Service heads towards privatization that we’ll have a semi-monopoly in package delivery that is very much like that of broadband delivery.
          The postal rate system with its separation of market dominant and competitive products and attempts at eliminating or segregating cross subsidization is a mess built on questionable assumptions and designed to foster low rates for advertising mailers.
          Comparisons to other countries aren’t all that illuminating since the US system delivers about 40% of the world’s mail at close to the lowest prices. The countries that have dabbled with shifts towards privatization are the ones showing the worst losses.
          The postal network serves as infrastructure. That network has a number of uses and potential that is not being mined. In addition to that the postal infrastructure is able to deliver public goods and services in a way that no private network has shown the ability to do.
          The point though is that much of what is discussed in the cited article is tied directly and inextricably to the availability of postal services.

          • Ruby

            Also, USPS package delivery is substantially better, in terms of both delivery time and price, than it’s competitors. The problem is that there’s apparently some law or regulation somewhere that forbids the USPS from using advertisements that directly compete other services.

            So even if it’s true that USP will routinely take a week or more to deliver a package that you paid for 2-day shipping on, and there’s not a damn thing you can do about it, the USPS cannot run ads even pointing out that this is a thing that happens, let alone that they DON’T do this.

  • My friends, Ann and I faced the problem of paying our various domestics some years back. We used to pay them in cash, of course, but then I started running for President, for Pete’s sake, so that had to end. We briefly tried using checks, but the pain from handwriting those things was crippling (to our personal secretary, mind you, not us, but we couldn’t bear seeing him suffer … well, listening to him talk about it was the real hardship, but I digress). Anyway, for the past several years we’ve been compensating them in “Rombucks,” a virtual currency I created. These Rombucks, and that name is trademarked, my friends, can be redeemed just like cash for any of our gently used household items, like old sheets or half-used rolls of bathroom tissue. If an employee accumulates several, they can even be redeemed in lieu of one of Ann’s disciplinary floggings if the need arises. They can also be redeemed on a 1 for 1 basis for food, any of our homemade frozen pops. They’re delicious, and Ann makes them in three different flavors: plain, water, and salt. The salt ones have a bit of a kick to them!

    My friends, I don’t expect every corporation person in Amercia to adopt Rombucks ™ as we have. But they’ll innovate their own solutions, which by the way is what makes Amercia the great nation she is today.

    God bless, my friends!

    • Brilliant.

    • SV

      I’ve been missing you. A lot.

      • Bill Murray

        if you keep practicing your aim will improve

    • Anonymous

      Is the salt pop frozen ocean water or is it a plain/water pop dipped in salt?

  • Because God forbid the employer either absorb the cost or, what would be easier, negotiate with the banks to eliminate these fees all together. Shit, it is like saying “Here’s your paper check. Why is it less than what you expected? Well, we had to deduct the cost of the paper, and the ink. And wear and tear on the printer and …”

    Since tumbrils and guillotines aren’t the answer for some unexplained reason, I wonder if the charge could be made that requiring employees to pay these fees result in them receiving less than minimum wage.

    No, you know what? Fuck the ponderation. Time to call the Congress Critters.

    • Aidian

      When have ‘our’ Congress Critters ever paid the slightest attention to the policy preferences of the poor? Tumbrils and guillotines are the answer.

      • Davis X. Machina

        Tumbrels, and guillotines. But not pitchforks, at least not domestic ones.

        Ames/TruValu closed their West Virginia pitchfork plant back in 2005.

        • somethingblue

          There would be a certain justice in using outsourced pitchforks.

  • HP

    The obvious solution is to start paying the working poor with gift cards for Bed, Bath, and Beyond and Best Buy. Unless you’re one of those elitists who don’t think poor people deserve decent linens for their guest rooms,

    And clearly, we should institute a system whereby productivity is rewarded with hefty discounts on weekend retreats to local bed-and-breakfasts. This would help with homelessness, and improve performance for those workers who would like to take a shower and sleep through the night.

    • HP

      And while I’m on the subject, what minimum wage worker wouldn’t enjoy fifty percent off at the day spa? I know if I were working two jobs, a full-body massage and a makeover would be very relaxing.

    • Jay Gould

      I can get half the working class to kill the other half in exchange for a chance to be entered in a drawing for a $100 Target gift card.

      • Some labor spies causing problems would help too, but then you already knew that.

  • LoriK

    Ms. McLemore is either making very little money or her pay card has more generous terms than the ones I’ve seen. The ones I’m familiar with won’t let you withdraw more than $500 at a time, no matter how much money you have on the card. Maybe she’s going into the issuing bank to make the withdrawal instead of using an ATM?

  • The Department of Labor needs to jump in on this, and if we had a progressive or populist Administration, it certainly would…

  • Nutella

    Besides employers, government agencies are getting into the act. Chicago is switching to a new fare card system that sounds reasonably OK (although I resent having to give my name, address, and phone to get a damn bus ticket) but also has an ‘optional’ debit card feature that the CTA will be pushing because they’ll get a cut of the bank fees.

    Fees have been lowered a bit after public outcry but the entire idea of the CTA channeling their customers into the clutches of the banksters is disgusting.

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  • Richard Gadsden

    What the hell happened to the Truck Act over there?

    Ours used to require that any employee who wanted to be paid in cash was entitled to be so paid, regardless of any contract term that purported to restrict this.

    When that was abolished, the rule became that payments could be by cheque, provided that the cheque could be cashed for free (banks would create special free-to-cash cheques for this, which they charged the employers for) or by direct deposit (now, by far, the most common way, using BACS transfer), provided that the employer guarantees that a minimal zero-fee account will be available to all employees. Such a minimal account can be restricted to only allowing deposits from the employer, and only allowing withdrawals in cash over the counter (though, usually, they issue an ATM card because they’re cheaper to the bank, and they do allow other deposits) and need not offer any other services (direct debit, standing orders, cheque book, etc).

    Obviously, every major bank in the UK now offers a “basic bank account” to everyone (no fees at all; no credit check; no overdraft ability; no automated outgoing payments) – they then charge higher BACS fees for employers paying into basic accounts than to normal ones. But the employers have to eat the fees.

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