Senators seek investigation into paycard industry

On July 11, 2013, sixteen U.S. senators sent a letter to the Consumer Financial Protection Bureau and the Department of Labor uthat rges an investigation be made into the business practices of payroll card providers. In the wake of media coverage critical of the fee structures for paycards, the legislators voiced concerns that providers charge high fees that drain minimum wage level workers of their pay and that those practices may violate consumer regulations.

In referencing the case of former McDonald's employee Natalie Gunshannon and the class action lawsuit that alleges a McDonald's franchisee forced Gunshannon to accept a paycard for the deposit of her pay, the senators urged the government agencies to undertake research to determine, among other things:

• Whether workers understand paycard fees, such as for ATM withdrawals and balance inquiries
• What aggregate effect fees have on employee income
• Whether certain fees violate Regulation E of the Electronic Fund Transfer Act or the Fair Labor Standards Act
• Whether the existing market "provides for adequate competition"

'Steering' practices under scrutiny

But the senators have further concerns. "Perhaps even more worrying than the fees associated with these cards is the possibility that employees might be coerced or inappropriately pressured into using them in the first place,' the letter state. "Every employee should have the right not to use such a card and to instead receive their pay via a paper check or direct deposit."

The lawmakers recognized that paycards may be a viable alternative to check cashing solutions. "Still, it is important both for employees to know their rights and for employers to understand their obligations under federal law," the senators said. "This is especially true given the patchwork of state laws governing payroll systems."

The letter went on to say that the government must set "clear, bright lines" for paycard providers to follow and provide fee disclosures, as well as information about their federal rights. "We must send a loud and clear signal that we will not tolerate financial products that take advantage of vulnerable, low-income workers," the senators said.

The legislators, including Senators Dick Durbin, D-Ill.; Richard Blumenthal, D-Conn.; Chuck Schumer, D-N.Y.; and Joe Manchin, D-W.Va., are also concerned with the commissions employers reportedly receive for signing up employees on paycard programs.

"This situation creates an obviously perverse incentive structure in which employers could be rewarded for steering their own employees toward high-fee products," the senators said. "It is also problematic if companies that operate through franchises do not adequately supervise the payroll-card practices of their franchisees."

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