Paying workers by debit card is not recommended

Paying workers by debit card is not recommended
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Paying workers by debit card is not recommended Paying workers by debit card is not recommendedLow-wage workers at several companies, such as Wal-Mart, Home Depot, Darden Restaurants and McDonald’s do not have to get their pay on debit cards, unless they are willing to see their hard earned pay taken by high fees. The Consumer Protection Bureau is now warning employers against the practice of paying on debit card, which has become increasingly common.


The Consumer Financial Protection Bureau has issued a bulletin that warns employers against the practice of paying on debit card. The practice has resulted in at least one class action lawsuit, according to Associated Press reports. New York Attorney General Eric Schneiderman has also expressed concerns about debit cards being used in lieu of paychecks. Companies who use the debit cards as paychecks have argued that the cards are a more cost effective way of paying employees.

The debit or ATM cards are frequently used to pay employees without bank accounts. Those with bank accounts can receive pay by direct deposit. However, it is has been said a growing number of Americans are unbanked, meaning they have no bank account. The Federal Deposit Insurance Corp. found that 28.3 % of households were either unbanked or underbanked, conducting financial transactions outside the traditional banking system, according to a 2011 survey.

Back in 2009, only 18.2 % of households were unbanked or underbanked. Data shows that about 9 % of U.S. households do not have a savings account while some 10 % do not have a checking account. Without a bank account, many consumers end up paying fees to cash checks through check-cashing services or at stores that charge fees to cash checks. When using the debit cards, they are charged a fee for withdrawing money at ATMs and some companies charge fees when balances drop below a specified amount.

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A survey conducted by the Center for Responsible Lending revealed that 37 % of voters feel they had been “overcharged” or deceived by a financial company. Therefore, many people feel as though they cannot trust financial institutions so they do not open bank accounts. Some feel as though they don’t have enough money to open an account as some banks require minimum balances.

Many organizations and agencies are encouraging workers to refuse payment on the debit cards because the fees can take up a significant portion of their wages, which could be used toward necessities. As an example, withdrawing $20 at an ATM can result in a fee of $3 or $4, which is significant, especially to those who work in the lower paying industries.