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Benefits of banks, and businesses putting wages on prepaid debit cards

Jul 25, 2013 Sean Albert

Americans who have poor consumer credit scores can turn to alternative methods such as prepaid debit cards to be able to swipe and go at checkout, but it appears as though banks and businesses are beginning to use these cards to pay their employees.

Prepaid cards have become more popular for paying wages because they provide numerous benefits for banks and businesses, according to Consumerist.

Benefit No. 1 - They are low cost
For companies, prepaid cards are attractive due to the fact that they don't cost much money. The source provides an example of a business with 100 employees who get paid on a bi-weekly basis, which - it would save more than $4,000 a year by issuing paychecks via prepaid cards. To experience the most savings, businesses will need to get all of their employees to agree to take paychecks via this method, but that likely won't be easy.

Benefit No. 2 - They are unregulated and come with fees
Banks enjoy prepaid debit cards for a different reason - the fact that they come with high fees. For instance, by simply not using a card for a while, banks are able to collect a $7 inactivity fee. Additionally, there are often fees to transfer money, make a purchase or use the card at an out-of-network ATM. With the potential for all of these fees to be collected, it is clear why banks are in favor of businesses using prepaid cards for paying wages.

Major companies in trouble for using prepaid cards for wages
While this method of payment is beneficial to both banks and businesses, some companies are receiving some backlash. According to Bloomberg, Walmart, Time Warner Cable and more than a dozen other companies are currently being investigated for using prepaid cards.

"We are concerned about excessive or insufficiently disclosed fees which may unduly reduce employees' take-home pay," New York Attorney General Eric Schneiderman said in letters to companies.

Walmart spokesman Randy Hargrove told Bloomberg that the company's employees are able to choose direct deposit or paper checks, and its payroll cards are "employee-friendly."

These companies could be in some trouble if it turns out that being paid via prepaid cards was a condition of employment, as employees have to consent in writing to be paid via this method.

With that said, any business that plans on taking advantage of the benefits of paying employees with prepaid cards should be sure that it isn't a requirement and that they obtain consent from anyone who chooses the method.