Paper? or Plastic?
by Barbara Hurst, BOL GuruGuru Bios
Employees may not only hear that choice from the cashier at the grocery check-out. Some employees, who do not have bank accounts where their pay can be direct deposited, now have the choice of receiving part or all of their pay on plastic stored-value cards. These cards can be convenient for the so-called "unbanked", but there are concerns being raised about them by Consumers Union regarding fees, and what is perceived as a lack of consumer protection.
The cards can be used at ATMs or at point-of-sale terminals. Some have the Visa or MasterCard logo and can be used almost anywhere. The cards are reloadable and are issued by banks or by a third party administrator that uses a bank to hold the funds.
Ecount, a provider of electronic payment solutions, says they have 1.5 million cards out, and are adding 500,000 each year. They report a 220% increase in 2003 in the total dollars issued to their cards.
Some states have labor laws that prohibit employees from being charged to get their pay. Employers are trying to skirt those laws by setting up the account to allow employees one or two fee-free visits to an ATM or retail terminal per pay period. But unless the card is emptied during those two visits, the holder faces the possibility of paying ATM fees and surcharges every time the card is used. Banks sometimes contract with the employer by charging a monthly fee (at the present time about $3 or $4) for each card issued, thus eliminating the fee for the card holder. This is more common where the cards are mandated rather than issued on a voluntary basis.
The liability attached to the issuing of the cards is where the sticking point becomes evident. The cards are not currently covered under Reg E, which limits a consumer's financial liability and requires the financial institution to recredit the account within a specified amount of time. Fed is proposing that payroll-card accounts be covered under Reg E, but that change is still in the proposal stage. Visa and MasterCards have "zero liability" policies, but they don't protect the consumer if someone fraudulently uses the PIN and withdraws cash from an ATM.
Copyright © 2004 Bankers' Hotline. Originally appeared in Bankers' Hotline, Vol. 14, No. 8, 10/04
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