Rating State Government Payroll Cards: Thumbs Up for Cash Access; Thumbs Down on Overdraft Fees

Source: Lauren Saunders, National Consumer Law Center, November 2015

Employers are increasingly eliminating paper paychecks and using payroll cards to pay workers who do not have direct deposit. In 2015, more employees are expected to receive payroll cards than paychecks. Payroll cards can be a safer, faster, more convenient, and cheaper way to receive wages than a paper paycheck. However, payroll cards that are loaded with fees can chip away at thin wages.

This report surveys the payroll cards used by state governments to pay their own employees. Nineteen states currently have active payroll card programs. Each of these states uses payroll cards appropriately: as a second choice pay method, with the vast majority of employees paid by direct deposit. Direct deposit into an account of the employee’s own choosing should always be the first choice for how to receive pay.

The fees that state employees can incur on their payroll cards vary considerably state to state. We were unable to determine the average amount of fees that state employees actually pay because not a single state asks the card issuer to provide that data. This “don’t ask, don’t tell” policy is unacceptable. The data is easily available, and states should know if a payroll card is causing low wage workers to lose their pay to fees. Judging by the fee schedules, however, we made an attempt at assessing how easy it is for workers to avoid fees.

Every state payroll card is capable of being used for free if the worker is careful. Every card allows workers to withdraw their entire wages at least once per pay period at a bank teller window, gives the worker at least one free ATM withdrawal per deposit, charges no fees for purchases, and permits some free customer service calls. But some state payroll cards make it hard to avoid fees with normal usage…