Gaps in the law leave workers exposed to junk fees, such as those incurred by some workers for merely checking their account balances at ATMs; CAP report outlines policy solutions to protect the wages workers have earned and deserve.
Washington, D.C. — The way workers are paid is changing, with electronic forms of payment increasingly replacing cash and checks. But these changes have been a mixed bag for workers compensated with payroll cards. Payroll cards, a type of prepaid debit card, can often carry a number of junk fees and may extract wealth from the very workers who can afford it least. A new report from the Center for American Progress highlights gaps in the law that leave workers exposed to junk fees and offers policy recommendations for federal, state, and local policymakers to make sure that workers are adequately protected and are not separated from their wages.
“Workers are already struggling and shouldn’t have their wages further reduced by high-fee payroll cards,” said David Madland, senior fellow at the Center for American Progress and co-author of the report. “Policymakers need to take action so that vulnerable workers aren’t ripped off.”
A 2018 study from the Center for Financial Services Innovation (CFSI) found that relative to the population of working Americans, payroll card users tend to be younger, occupy lower-income brackets, and have higher representation from certain communities of color. Publicly available information also points to the retail, manufacturing, and fast-food industries as key sectors that use payroll cards.
While payroll cards can be a convenient method of payment for unbanked Americans, and a complementary financial product for workers with bank accounts, this form of payment also presents many downsides. According to CAP’s report, payroll cards can charge a variety of different fees: Workers can be charged for applying for or participating in the payroll card program; for checking their account balance at ATMs; for using customer service features; for maintaining their account; for having a low balance or account inactivity; for making point-of-sale transactions in stores or online; for being issued initial or replacement cards; for overdrafting their account; and for simply closing their account and requesting refund of remaining account funds.
Several of the recommended policy changes outlined in CAP’s report can be accomplished through executive action at the state and federal level, though some reforms will require legislation. While the policy recommendations in the report focus on payroll cards specifically, the principles underlying those recommendations are universal for any form of electronic payment. CAP’s recommendations include:
- Collecting better data about how workers get paid, the level of payment choice they receive at work, and the fees they may incur
- Improving protections for consumers by banning junk fees, prohibiting overdraft and other credit features, requiring deposit insurance and ensuring better access to worker funds
- Requiring federal, state, and local governments to use best practices for payroll cards when paying their own workers and contractors
- Improving enforcement of payroll card laws to ensure workers receive the protections they are afforded by law
Encouragingly, progress on payroll card protections has already been made at the state level—namely, in Connecticut, Hawaii, Illinois, New York, and Pennsylvania. Elsewhere, legislators—in Massachusetts, for example—are exploring new avenues for enshrining such protections into law. State Rep. Paul A. Brodeur of Massachusetts served as house chair of the Joint Committee on Labor and Workforce Development during the previous two-year legislative session. His committee advanced wage card legislation following engagement with industry and consumer advocates, which incorporated elements of federal regulations and statutory language from other states. While the redrafted bill did not make its way into law, Brodeur expects the debate around wage cards to continue during the current legislative session.
“Addressing the challenges that unbanked employees face in today’s economy should be a priority for any policymaker interested in leveling the playing field for working families,” said Brodeur. “The findings of the Center for American Progress’ report on wage cards will prove to be a key resource as legislators across the country explore how to balance consumer and worker protections with the realities of the marketplace.”
Click here to read “How Workers Get Paid Is Changing: Consumer Protections Need to Catch Up” by Gregg Gelzinis, David Madland, and Joe Valenti.
For more information or to speak with an expert, contact Allison Preiss at [email protected] or 202.478.6331.