When you make minimum wage at $8 an hour, you expect it to actually be $8 an hour. Not $7, not $7.25, not $7.99.
Reinforcing that obvious principle, federal consumer protection regulators last week issued a bulletin warning employers that they cannot force workers to accept wages on pay cards, many of which later lead to surprise fees for withdrawing the money those workers have already earned.
Across the country almost 4 million households have someone who receives their wages on a payroll card, according to a recent survey by the Federal Deposit Insurance Corporation. The cards, often issued to workers without a bank account, have led to numerous complaints about undisclosed fees those employees encounter when trying to access the funds.
In June, a Pennsylvania woman filed a class action lawsuit against the McDonald’s franchise where she worked based on alleged minimum wage violations caused by a pay card system that charged her and other workers to withdraw their earnings. In her case, the pay cards allegedly charged between $1.50 and $5 for each withdrawal.
Why all the noise over a few bucks here or pennies there? First, minimum wage workers rely on every last cent of their income to make ends meet, and paying fees on a regular basis to receive that income adds up. Second, the payroll industry is a $25-45 billion sector. Processing pay stubs and physical checks for companies with thousands of employees costs a lot of money. In other words, cutting out those processes (for example, by implementing mandatory pay card systems) results in tremendous cost savings and a net benefit on the corporate bottom line. Banks, who charge the withdrawal fees on pay cards, win big too. There is only one loser in this picture.
Nevertheless, pay cards can be put to good use. In principle, they provide easy access to wages for workers without bank accounts, preventing them, among other things, from having to make regular trips to a check cashing business that charges transaction fees.
California lawmakers have tried to regulate the use of pay cards. A couple years ago, Senate Bill 931 passed in spite of fierce opposition from business and banking interests. The Governor, however, did not sign the bill, stating that it would impose numerous and costly new requirements on pay card providers. At the same time, he recognized that “reasonable protections are needed for those who use pay cards” and vowed to work with legislators on a regulatory solution.
With the growing use of pay cards across the country, lawmakers who revisit this important issue should keep in mind that people already work hard for their wages. They shouldn’t have to pay for them too.