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Payroll-Card Lawsuit Will Incite More Education Around Prepaid, and That's a Good Thing

Will Hernandez by Will Hernandez
June 25, 2013
in Uncategorized
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The prepaid card industry is about to dealwith another image problem at a time when it is doing its best toeducate advocacy groups, consumers, media, and the government aboutthe benefits of its products.

An organization named Some of Us, which describes itself as “aworldwide movement to hold corporations responsible for theiractions and forge a sustainable path for the global economy,”blasted its email list yesterday about the lawsuit involving aformer McDonald’s worker who claims management forced her to use apayroll card to access her wages instead of a check or directdeposit. The organization’s email bashes McDonald’s as a whole(even though the lawsuit is aimed at a local franchisee), but themisinformation in the communication regarding prepaid debit cardsshould worry prepaid advocates.

An excerpt from the email:

When single mother Natalie Gunshannon went toget her first paycheck from her new job at McDonald’s, she was infor a shock — McDonald’s gave Natalie her salary on a debit cardthat came with ridiculous hidden charges, like forcing her to pay$5 every time she withdraws her money at her bank.

What’s more, when Natalie asked for a check, McDonald’s refused,saying she had to take the card — and the charges — or not takeany money at all. This scheme allows her local franchise operatorto save a few dollars from the cost of cutting checks by makingdeals with big banks that force employees to use fee-laden cards.In many cases, the high costs push workers’ hourly pay belowminimum wage.

Tell McDonald’s to ban the practice of forcing employees to bepaid with fee-laden debit cards.
The practice of replacing checks with expensive cards is gainingground with employers. This practice saves businesses money andallows banks to charge ridiculous sums — Natalie was forced to pay$15 to replace her card if she ever lost it. Employers know thatthey won’t have to pay the high fees, because their employees willbe the ones charged.

This is abuse of employer privileges, pure and simple, tellingworkers that they have no choice but to accept unfair charges or gohungry. Employers are forcing this upon their workers because in abad economy, they don’t think workers have a choice to speak up –even though the practice is illegal.
The lawsuit’s main complaint is whether the local franchiseeforced the employees to use the payroll card. But, independent ofthat, the organization uses damaging language to describe prepaiddebit cards. I’m not sure how many consumers subscribe to the Someof Us mailing list, but the prepaid industry just made a Noah’s Arkfull of new enemies.

J.P. Morgan Chase, which issues the cards and works with employerson ways employees can access their funds free, is defending theprogram and rightfully so. Advocacy groups and consumers seldomunderstand the costs behind operating a prepaid program. Prepaidprofit margins are thin to begin with, but banks provide theproducts because they truly believe they’re offering consumersconvenience. And consumers like them as well. Consumers surveysfrom the Center for Financial Services Innovations, the NationalFoundation for Credit Counseling, and Mercator Advisory Group’s ownresearch reveal consumers choose prepaid cards for their safety,convenience, and value and because the cards are fairer and lowerin costs compared to checking accounts.

When I was a reporter for SourceMedia, I interviewed someone atChase regarding its prepaid card programs for payroll, tax refunds,and other benefits such as child support and unemployment. Theexecutive told me Chase does everything it can to provide thecardholder a way to use the card for free. Chase does miss revenuechances because of this, but the executive told me the bank’s goalis to provide convenience first and help the financiallyunderserved and others who use its cards. This is the type ofmessage the prepaid industry needs to continue to rallybehind.

The local McDonald’s franchisee could very well have forced thisformer employee to use the card. And if he did, shame on him. Butwithout knowing all the details on both sides, it’s difficult todetermine who is at fault. I’m sure somewhere along the line therewas confusion on both ends in regards to the payroll card. Andthat’s where the industry can step in and educate cardholders,employers, attorneys, and consumer advocacy groups about payrollcard programs and how to avoid fees while also preaching about thecard’s convenience.

This lawsuit is great timing in the sense that prepaid executivesand government officials are gathering near Washington, D.C. thisweek for the Network Branded Prepaid Card Association’s annualPower of Prepaid conference. The show’s purpose is to address themisconceptions about prepaid such as the ones presented in theMcDonald’s lawsuit and correspondence from advocacy groups. I willparticipate in a panel Friday morning about prepaid and the mediaand we’ll discuss this lawsuit and similar issues.

Registered Payments Journal users can downloadwebinar slides from Mercator Advisory Group’s recent presentation,Debunking Prepaid Myths.

Tags: Banking ChannelsCompliance and RegulationCreditDebitFraud Risk and AnalyticsMercator InsightsMerchant AcquiringMobile PaymentsPrepaidSelf Service and Convenience
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