Prepaid cards are gaining speed in our tight economy but don’t succumb to the lure of being paid by one. These cards are money makers for the banks and not a good way for your to manage your money.
For these largely hourly workers, paper paychecks and even direct deposit have been replaced by prepaid cards issued by their employers. Employees can use these cards, which work like debit cards, at an A.T.M. to withdraw their pay.
Prepaid cards include fees. This means you will pay the bank to get the money you earned. If you earn $10 per hour and must pay $2 to get to the money then you are actually being paid $8 per hour — twenty percent less than you think.
BusinessWeek provides PDFs showing all of the fees (PDF) in Home Depot’s (HD) Citibank (C) Payroll Program.
Consumers Union even clarifies the dangers more by explaining federal laws do not protect the debit cards.
“Prepaid cards can come with a long list of fees and don’t provide the kind of federally guaranteed safeguards consumers need to protect their money,” said Michelle Jun, senior attorney for Consumers Union, the policy and advocacy arm of Consumer Reports.
BusinessWeek reports New York Attorney General Eric Schneiderman launched an inquiry yesterday into 20 companies where the practice may be common.