Smart Spending

More Employers Loading Paychecks Onto Prepaid Debit Cards

Not long ago people received their paychecks in paper form.  They really did not have any other choice.  Eventually, as technology advanced, direct deposit became more feasible and more affordable.  Some employers began requiring that their employees be paid via direct deposit.  Unfortunately for those who are trying to live life without a bank account, they now had to go and open one just so they could get paid.  To help circumvent this ire, there are employers who will now load paychecks directly onto prepaid debit cards.  But there are significant drawbacks to being paid this way.

There are quite a few people out there that find life is easier without a bank.  Whether they are doing so on principal because they do not like how greedy banks can be, or if they have gotten into too much trouble with overdraft fees, they can opt to have their paychecks directly loaded onto their prepaid debit card.  What can end up happening, however, is that they pay more in fees with these cards because of all the small charges that get racked up.

There are multiple cards issued by multiple companies, and every one of them has its own little quirks and fees.  But the common theme seen amongst all the cards is that there are a host of fees, many that people are completely unaware of.  For instance if an employee’s paycheck of $100 is loaded onto the card, they may only get $98 after the deposit fee is deducted.  Then if they try to make a purchase for $99 they can get charged another fee for attempting to draft too much out of the account (similar to a checking account overdraft fee, but considerably less).  They then realize they forgot to take into account the loading fee, so they check on their balance.  The simple act of seeing how much money they have costs them another dollar or two.  Using an ATM that is out of network costs them, and a plethora of other fees end up causing these “simpler and cheaper” ways of living to be not so cheap.

There are actually quite a few large companies that have started the practice of loading paychecks onto prepaid debit cards.  And the practice has sparked a small outrage.  Unfortunately, it is the employees that are making the decision; they cannot be forced to accept payment on a prepaid card, but rather must opt into the program with their employer.  For example, Walmart employees still get the option of paper check, direct deposit, or prepaid card.  Unfortunately what ends up happening is the minimum, or low, wage employees are the ones using the cards.  And they are helping line the pockets of bankers because of all the fees that are being deducted from their already small paychecks.

The fact that employees have to opt in to the program means that employers can get away with it and no legal action can be taken.  The fact that these cards carry so many fees, often that people are not aware of, is a rather underhanded practice.  What the employers should be doing is helping to educate their employees on the risks of using the cards, and the benefits of using a traditional bank account.  If you are trying to live life without a bank, a prepaid debit card may seem like a good idea, but the chances are, it will cost you more than opening a checking account.