Prepaid debit cards carrying hidden fees have, in the wake of the Great Recession and consumer protections mandated by Dodd-Frank, become a way for large banks to make money on people without money, from plasma donors to prisoners. The Consumer Finance Protection Bureau is now on the case and will likely implement a set of regulations designed to limit fees, require fee disclosures, and set stricter rules for payment periods in early 2016. If change comes, it will come too late for many workers employed by recognizable brands who have spent several years tithing to banks.
As recently as 2012, nearly 4.5 million Americans were getting paid in prepaid debit cards with wages totaling a whopping $34 billion, according to the financial researchers at the Aite Group. Most of those people were minimum wage workers employed by retailers including Victoria’s Secret, Tommy Hilfiger, Express, and Bath & Body Works, moving payments away from traditional banking models. In 2013, the Consumer Financial Protection Bureau sent out a warning to employers reminding them that federal law gives employees the right to chose whether they wanted to be paid with cards. A warning wasn’t enough.
This year, Pennsylvania woman Natalie Gunshannon won a two-year legal battle against former employer McDonald’s where local franchise owners Carol and Albert Mueller forced the staff onto payroll debit cards from J.P. Morgan Chase with no option for traditional paychecks or direct deposit. The card’s hidden fees ate away at Gunshannon’s already low wages, charging $1.50 per ATM visit, $5 for withdrawing money over the counter at a cash register, $15 to replace a lost or stolen card, a $1 fee for checking the balance, and a 75 cent charge just for paying bills online.
Even workers who are careful about spending may not realize all the ways prepaid cards are fining them. A 2014 study by the Consumer Financial Protection Bureau found that roughly one in four payroll cards contained limited or no fee information about the agreements, while government issued prepaid cards were even worse: More than 50 percent failed to disclose all the ways users could be charged. Just under 47 percent of all prepaid cards charged fees to access account information with the average cost being $3.54.
That government-issued cards are among the most likely to have hidden fees is disconcerting. More than 40 states now use prepaid debit cards for everything from unemployment benefits to child support, and social security payments are also being offered in prepaid card form. Savings on postage and paper are good for the government, but it passes the charges along to citizens. Even prisons and jails have begun issuing cards to inmates on release. Gregg Cavaluzzi was released from federal prison in 2013 with $120 from his incarcerated labor loaded on a prepaid card but told Al Jazeera the fees took all but $70 of it. People jailed for only a single night may find the cash in their wallet replaced with a prepaid debit card for the same amount.
If the prepaid card situation changes substantively in 2016, banks may feel a slight pinch and workers may feel some relief. Still, there is a financial hostage crisis in full swing and all the presidential candidates playing populist have ignored it thus far.