business news in context, analysis with attitude

Yesterday, MNB took note of a New York Times report that 16 Democratic US senators are urging a federal inquiry into a growing practice in the US: paying employees by giving them prepaid ATM cards instead of offering paper paychecks or direct deposit. The trend has come under criticism because, as the Times writes, "in the vast majority of cases, using the cards can generate large fees — 50 cents for a balance inquiry and $2.25 for an out-of-network automated teller machine, for example. For part-time and low wage workers, the fees, which can be difficult to escape, quickly devour much of the money deposited on the cards."

My comment:

I'm sure that there are plenty of reasons and rationales that banks and companies can offer to make this practice seem like a reasonable way to pay people. But I'd be willing to bet that the only real reason it is taking place is because some banks told some companies that they could reduce their costs by switching to such a program, and the banks knew that it could make money by assessing fees, many of them to people who cannot afford them. These kinds of policies aren't instituted because it is good for the employees. That much seems self-evident.

From my perspective, companies that use such programs are telling their employees that they really don't give a damn about them, that their own bottom lines are more important than the ability of people in the trenches to make a go of it on their salaries. It symbolizes to me the disconnect that often can happen between the tops of organizations and the people on the front lines. It is a shame, and the policy ought to be halted. Now.

MNB user Jim Gilliam responded:

Kevin, as a long term reader of MNB and owner of a small business (300 employees) I have to tell you that you could not be more wrong in your assessment of Pay Cards. I am moving next week to paying my employees with pay cards  for two primary reasons:

• As a Fraud Prevention measure – My company has had too many instances where an employee went to a Office  Supply Store and bought a check encoding device. They then copied the Routing number and account number from their paycheck and began printing up their own false paychecks. Usually the bank will stand behind me and cover these losses, but not always. This tactic cost my company over $10,000 last year.

• My employees are asking for the Pay cards for two primary reasons: a) They were with a different employer who had pay cards and they like the convenience of them, b) The banks currently charge them exorbitant fees to cash their checks and any fees they incur on the cards will be significantly less.
I am sure like any industry there are disreputable card vendors out there who are cheating the employees. The vast majority of the Card Vendors (including the one I am using) are very reputable and offer a service that my employees are looking forward to – AT A LOWER COST TO THEM THAN THEY ARE CURRENTLY PAYING with significantly more convenience. I do also offer Direct deposit to my employees and about 25% take advantage of that – I will continue to offer that option.
Bottom Line – Stop with the Bad Guy Greedy Business Owner on this one – most of us want to do the right thing for our employees because we know how much we need them.

Fair enough.

I think that if employees want them, and other easily accessible options are available, then using the cards is fine. Sounds like that's the case with your company.

But I continue to worry that it will not always be the case with every company.

From another reader:

One reason that companies move to a payroll card is because of the proliferation of abandoned property laws.  States generate a lot of revenue from abandoned property.  If you pay someone and for some reason they don't cash it (it happens more than you might possibly
believe), you can't keep it and instead it becomes an administrative compliance nightmare involving up to 50 state governments and their individual regulatory requirements.  What's worse, if you don't get it right, within the required timelines, your company is then subject to
interest and penalties.  If on the other hand, you pay it onto a payroll card, your responsibilities are over.

I'm shocked to find out that people are getting paid and then not cashing the checks, to be perfectly honest.

Regarding the growing electronic surveillance of consumers by bricks-and-mortar retailers, one MNB user wrote:

Isn't this just another example of technology taking over what sales people used to do?
There are less people on the floor to interact with customers so retailers need the information somehow.

And from another reader:

Regarding customer surveillance, I'm sure the retailers and people who develop these programs hope it's just the beginning! I'm sure they're dreaming up stuff we can't yet imagine. I hope their lawyers are also considering the liability issues should this data be used not as intended. I personally feel it's already gone too far as outlined in your article. I think something like this should be strictly "opt in." In addition, I think the retailer owes you something for it -- maybe a special coupon or such. (?)

So it's okay as long as you get compensated for it?


Responding to our story about the move away from loyalty cards by some retailers, one MNB user wrote:

I like the loyalty program at King Soopers (Kroger) here in CO. The discounts are significant and you do not have to carry the card with you – just enter a phone number – to get the discounts. Each trip earns points for gasoline discounts, and then we get the customized coupons mailed to the house. The coupons are for items we buy on a regular basis, so I go there even more often than I might - to use the coupons before they expire. Their method works on me.
KC's View: