Legislation in California that would restrict fees associated with prepaid payroll debit cards likely would offer little economic incentive to providers and issuers to support such products, notes one analyst.
Senate Bill 931 would prohibit issuers and providers from charging payroll cardholders fees for loading wage funds into their card accounts, and it would require them to offer cardholders at least one free withdrawal each pay period from an out-of-network ATM. The legislation also would require two free purchase transactions each pay period, three free customer-service calls per month and the option to receive free paper statements.
“There will be very few suppliers willing to provide payroll cards in that environment,” Tim Sloane, director of the prepaid practice for Mercator, tells PaymentsSource.
California Gov. Jerry Brown must sign or veto the bill by Oct. 9. Brown has not indicated which way he is leaning.
Payroll card managers who decide to continue to operate likely will have to partner with employers who possess a stable workforce, Sloane adds.
“As a program manager, I have to select employers that have employees with longevity so that the program remains [economically] sustainable,” Sloane says. “I can’t be selling this product to a fast-food restaurant where [employee] turnover is high.”
About 12 labor unions are sponsoring the bill. Organizations such as the California Labor Federation want similar fees to what the state negotiated with Bank of America Corp. for unemployment cards about two years ago, according to lobbyist Angie Wei. BofA applies few fees to the card, she says.
Wei became aware of payroll cards during the organization’s work on unemployment cards with the state’s Employment Development Department, Wei tells PaymentsSource.
California assemblywoman Mariko Yamada also contacted labor organizations to relay concerns cardholders had about fees as the cards became more popular, Wei says.
Issuers and providers believe the bill essentially will ban payroll cards, though Wei disagrees.
“We could have introduced a bill that banned them,” she says.
Wei contends payroll card issuers have similar or better fees than what the legislation proposes. “I don’t understand how they can threaten to leave the market. It can be done,” she adds
PaymentsSource reached out to such payroll card providers as First Data Corp. and Automatic Data Processing Inc. First Data did not have an executive immediately available to comment. Automatic, which does business as ADP, did not respond.
The California Bankers Association, among other organizations, opposes the bill. “Our concern is that it may no longer be a viable payment method for employers, and we think they are a very valuable product offering [for the financially underserved],” an association spokesperson tells PaymentsSource.
Employers are siding with financial institutions because distributing the cards to employees is less expensive than printing checks, the spokesperson says.
“It should be noted that employees need to opt in for [payroll cards], and the schedule of fees is clearly spelled out,” she says. “There shouldn’t be anything that is a surprise.”
The organizations estimates ther state has some 500,000 payroll cardholders.
Whether California starts a national trend against what might be viewed as predatory fees remains to be seen, Sloane says. But different requirements in different states will derail prepaid’s primary purpose, he adds.
“If we want [financially underserved] individuals to have access to card-based financial services, a patchwork of state regulations that all demand a different product makes it pretty difficult [for providers] to be successful,” Sloane says.
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