Nickeled, Dimed, and Dollared to Death: Fee-Laden Payroll Cards Forced On Low-Wage Workers

A recent lawsuit and reports from regulators and consumer advocates suggest that some of the most abusive fees are being forced on those least able to protect themselves

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Thanks to a combination of public scrutiny and competition, the worst of the worst prepaid debit card fees have been pushed to the fringes of the financial world. But a recent lawsuit and reports from regulators and consumer advocates suggest that some of the most abusive fees are being forced on those least able to protect themselves: low-skilled workers in retail and restaurant jobs. 

Remember that a big reason many people use prepaid cards in the first place is that they’re unable to establish the credit history required to get a conventional credit card, that they can’t afford the fees that many banks charge for checking accounts with a debit card privileges, or both. Because these customers — often referred to as the “unbanked” — have so few alternatives, many financial companies saw an opportunity to take advantage of the situation by tacking on fees for everything from overdrafts to simply using the card for purchases to closing an account. But as financial heavy hitters like JP Morgan Chase and American Express got into the business, drawing more scrutiny and bringing competition into the market, the most abusive of these practices have become less common.

But that hasn’t been the case with so-called payroll cards, a kind of prepaid debit card that employers are increasingly using to pay low-wage workers rather than cutting checks or direct deposit. In this market, combination of minimal competition and employers who are unwilling or unable to demand fewer fees for their workers, has created a product ripe for exploitation. Employees are often automatically enrolled in payroll card programs and forced to jump through bureaucratic hoops to opt out, as the New York Times recently reported.

“This is, in some ways, a hidden market. It’s not a card that’s offered to the public, so it doesn’t get scrutinized by the public,” says Lauren Saunders, managing attorney at the National Consumer Law Center. “Employees have no say in negotiating the fees.”

For their part, employers maintain that many employees can’t accept direct deposit because they don’t have checking accounts — and that the fees associated with prepaid cards are smaller than what employees would have to pay to a check cashing service. But those arguments haven’t satisfied worker advocates or many employees, who at least want the option to avoid fees. In June, Natalie Gunshannon, a former McDonald’s employee in Pennsylvania who had been earning just over the minimum wage of $7.25 an hour, filed a class-action suit against the franchise owner, claiming she was required to take her pay via a JP Morgan Chase prepaid debit card that was loaded with fees, according to According to the complaint, the fees included a $1.50 charge for ATM withdrawals, $5 for over-the-counter cash withdrawals, $1 per balance inquiry, 75 cents per online bill payment, and $15 for lost/stolen card.

(MORE: 4 Prepaid Debit Card Fees You Should Never Pay)

Saunders adds that some cards charge a $7.50 “inactivity fee” after only 60 days of dormancy; $10 to close an account and receive any remaining funds on a check; and $25 for overdrawing the balance. (“We think overdraft fees are totally inappropriate on payroll cards,” she says.) Even trying to avoid some fees can trigger others: Some cards charge users when they make a purchase using their PIN, which is usually the best way to avoid ATM fees.

(MORE: Should You Get a Prepaid Debit Card?)

Why do employers force payroll cards on workers? It appears that payroll debit cards are essentially a way for companies to shift the cost of payroll processing to employees. Card providers promise big savings for companies that use them. A calculator on Visa’s payroll card webpage for businesses says a company with 250 workers getting paid biweekly could save more than $10,600 a year. Some employers are also promised a bonus for every worker they sign up. The New York Times found that the city’s Housing Authority contract with a payroll provider says the agency “stands to receive a dollar for every employee it signs up to Citibank’s payroll cards.”

“That could lead them to inappropriately steer people to the payroll card,” Saunders says.

The pitch appears to be working. “We added approximately 200 new corporate clients, bringing our total count to more than 1,400” companies, Daniel Henry, CEO of Netspend, one of the industry’s biggest providers, told investors earlier this year. (Netspend, which also offers general purpose reloadable debit cards, was recently acquired by Total System Services.) Netspend said in a March SEC filing that nearly three-quarters of its revenue in the first quarter of the year came from service fees, a total of nearly $85 million.

(MORE: Which Cost Less: Checking Accounts Or Prepaid Debit Cards?)

It seems some government agencies are starting to question the claims that these cards are a win-win for everybody. The New York Times reported last week that the New York state attorney general’s office launched an investigation, asking 20 large employers, including McDonald’s, Walgreens, and Wal-Mart, to provide information about their payroll debit card policies and practices. And The Times-Tribune of Scranton, Pa., reports that the McDonald’s lawsuit has prompted the U.S. Department of Labor to look into the issue.


This is a way to get company payroll costs paid by the employee instead of the company ... I hope the CEO has his deposited there too. There should be a no-penalty opted out option for all employees.  Just one more example of corporations ruling the world.


There are some good payroll and prepaid cards that have little to no fees.  MoneyManager, BOA's Cashpay, Regions Now, PNC SmartAccess, GoBank, ADP's payroll cards - all of those have free ATM access and little to no fees.

Unfortunately the media never looks at the better cards maybe out of fear that they won't have anything to write about regarding prepaid and payroll ripoffs.


 $1.50 to cash out your paycheck and deposit it wherever you want, put the cash in a lock box and use it as a bank... or... Use the card like you would any other bank card (you know, the whole concept).

Would someone come to my rescue if I was told I had to use the same card for when my $20,000 bi-monthly check gets deposited? Probably not. So why would I care that someone who is low income cannot figure out how to effectively absorb $1.50 each paycheck?

The cards are good for helping people manage money - it forces you to be frugal while still allowing you the freedom to spend your money on the things you NEED. You shouldn't be needing to use an ATM to check balances, you should be able to track your spending on your own. You won't be inactive, since you get paid and that counts towards activity. You won't need to use the over-the-counter withdrawal, since you have the cheaper ATM option... Not sure - but the only pain point seems to be over $1.50 a paycheck... Hell - I get charged $3 to use a Chase ATM as a BOFA customer - but who cares, I'm paying for convenience.

Point is - if you can't financially plan around a few bucks each paycheck - you've got bigger problems than how you're getting paid.


I'm absolutely amazed that I only see 1 comment posted here.  This is another example of UNREGULATED LEGALIZED THEFT, by big financial organizations. Lets kick the low income people even more so!. Where can we get the 6 digit payrolls for the average mid level banker and Million $ wages for higher level bankers.

Lincoln ( who was a Republican ) once said, and I paraphrase, " Government is there to do for people what they cannot do for themselves". Who can stand up against this THEFT!, In this federal government needs to finally stand up and say enough is enough!! 

Seems to me that the American is not love thy neighbor ( From Bible ), BUT ___k they neighbor so I can have my boats and cottages big bonuses ETC!

Who has the guts to stand up to the real thieves in this country!


Isn't that just a wonderful effect of our "winner-take-all" greed mentality?

 For the rest of us, "they're coming for our retirement money, and, you know what? They're gonna get it".

-George Carlin


@TenaciousJim ADP just got hit with a 5 million dollar lawsuit. The issue with free ATM access is limited access to those ATMs.


@CheburashkaKrokodilGena It's also media's responsibility to point out better options unless your dumb point is that only negative stories should be displayed.