A payroll card is a card that allows you to access the money from your paycheck using a card that looks like a bank debit card. The money is held in an account, and you withdraw it or spend it by using the card. A payroll card can be more convenient than using a check casher, because you can make ATM withdrawals and use the card to buy things. Some payroll cards also are cheaper than a check casher, but others are not. You will usually have to pay a fee if you use the card at an ATM more than once per pay period. You may have to pay other fees.
A payroll card is not the same as having your own bank account. The payroll card account usually is held as a single account in the name of your employer. That account holds the payroll funds for you and all of the other employees using the payroll card. Some payroll card programs establish a separate account for each employee, but others do not.
Employers choose payroll cards partly because it saves them the cost and inconvenience of distributing paper checks. Here are some questions to ask if your employer offers you a payroll card.
1. How financially solid is the payroll card issuer? If the payroll card company is not a bank, has my employer checked to be sure that the payroll card company is financially sound? Not all payroll cards are issued by banks. Your employer needs to check out the financial soundness of any company that will be holding your pay before you withdraw the pay using the card.
2. Do I get the same consumer protections with the payroll card that I would have with a card tied to a checking account? Federal law protects consumers with bank accounts when electronic funds transfers are made. It sets limits on how much money you can lose if a card linked to your bank account is stolen and used by a thief. Federal law also requires that your bank must “recredit”, that is, return funds removed from your bank account by theft or by mistake within 10 business days, unless the bank can show that there was no theft or mistake. The Federal Electronic Fund Transfer Act provides these protections. Since July 1, 2007, federal law gives you these protections, other than a monthly statement, for a payroll card established by an employer to deliver recurring wages, salary, or other employee compensation.
You may be told that you will be protected from theft by a VISA or MasterCard “zero liability” policy. The VISA and MasterCard policies do not give you the same protection as the federal Regulation E protections. The VISA and MasterCard policies have exceptions. These policies don’t give you zero liability in all cases. For example, MasterCard’s policy does not apply if a card is used more than two times in one year to steal from you. VISA’s “zero liability” policy does not apply when the card is used at an ATM. VISA’s policy also does not protect you if the card is used “outside the VISA system.” Retailers choose whether to process a purchase made with the card through VISA or through a different processor. VISA’s “zero liability” policy says it doesn’t apply if your card is used by a thief at an ATM or at a retailer that doesn’t process the card through VISA.
3. Can I use the card at an ATM? Am I limited to using the card only at stores? Where can I use the payroll card to withdraw cash without paying an ATM surcharge? Are there any limits on how often I can use the card at an ATM? Each payroll card program is different. Ask your employer where you can use the card and whether there is a fee. Even if the card issuer doesn’t charge a fee for ATM use, you need to know whether the card issuer has made an arrangement with any ATM networks for you to use the card without paying an “ATM surcharge” fee to the owner of the ATM.
4. Do I have to pay any fees? There are many kinds of fees to watch out for. Fees may include:
• a monthly fee,
• a fee after a certain number of transactions,
• an fee for using the card at an ATM,
• a surcharge to the ATM owner,
• a POS fee for use at a point of sale such as a store,
• a fee for not using the card for a period of time (inactivity fee),
• a fee to replace the card,
• a fee when funds are put on the card account (load fee), and
• a fee to get your money back by check if you don’t like the card.
One payroll card provider even charges consumers a fee per minute to speak to customer service.
Fees make a big difference in whether or not a payroll card is a good deal for you. A payroll card usually will cost less than using a check casher. Payroll cards often cost more than bank accounts. Many payroll cards offer just one ATM withdrawal per pay period without a fee. Some employers pay all or part of the payroll card fees. Your employer also can negotiate with the payroll card company to restrict the number and type of fees. Ask your employer for a list of all fees before you agree to a payroll card.
5. Can I set up direct payments to pay my regular bills? Some payroll cards offer a feature for direct bill payment such as for a utility bill, other cards do not. If you choose to open a checking account instead of using a payroll card, you can pay these types of bills directly from your checking account.
6. Can the card be overdrawn? Some payroll cards are set up so that they can’t be used if there is no money in the account. Other cards might let you take out more money than you have been paid, but then charge a high fee, called an overdraft fee. If you don’t keep careful track of your balance, you might spend or withdraw more money than you have. In that case, the card issuer could hit you with an overdraft fee of $29 or more.
7. Can I choose between the payroll card, a paper check, and direct deposit? If you have a bank checking account, you can usually have your paycheck directly deposited into your account. If you don’t have a bank account, ask your employer if you also get the choice to remain with a paper check if you don’t want to use a payroll card.
8. What about my financial privacy? Will the payroll card company use my financial information? Does the contract between my employer and the bank or payroll card company protect the information about where and when I use the card?
9. Does the card offer any benefits to help me save money? Can I transfer funds from the card directly to a savings account without having to pay a fee? Can I get low-cost money orders to pay bills to people who don’t accept the card? Can I use the card to send money outside the U.S. at a low cost? If the card is issued by a bank, will that bank also offer me a savings account and a low cost checking account? If I don’t want to use checks, will a bank that offers the payroll card offer a checking-type account with low cost money orders? If I hold and use the payroll card for a year, will the bank overlook past trouble managing a checking account and allow me to open a checking account? A payroll card is not a bank account. Ask if the bank that issues the payroll card will make it easier for you to qualify for a bank account if you hold the payroll card for a period of time.
10. Will the payroll card make my credit situation worse? If I owe money to the bank that issues the payroll card, can it take my payroll funds to repay that debt? Can my other creditors reach into the account and take or freeze my pay? Bank policies differ on this. Your employer might not know the answer. Ask the bank or payroll card company before you agree to use a payroll card.
Don’t accept a payroll card that offers a “cash advance” or a “payday loan.” Borrowing against your next paycheck is very expensive. It will keep you in debt for a long time.
11. Can I get all the information about the card, including customer service, in a primary language other than English? Your employer would have to arrange this with the company handling the payroll card.
*This information is provided as a consumer service by Consumers Union of U.S., Inc. Consumers Union does not give legal advice to individuals or to employers.
**Prepared March 2004. Updated October 2007.
Consumers Union of U.S., Inc.
West Coast Regional Office
1535 Mission St.
San Francisco, CA 94103