Will Payroll Cards Flourish or Flounder Under MC's New Rules?

MasterCard is tightening the screws around the use of prepaid cards as a way to pay employees. Some issuers will find its demands are straightforward and achievable; others may consider discontinuing the product.

"I do not see how the fringe players can stay in the business and survive," says Madeline Aufseeser, a senior analyst at Aite Group. "This is a scale-based business and companies need to have scale to make a profit."

MasterCard recently announced new standards for payroll cards, or the prepaid cards that companies distribute to employees as a way to access salary and other financial services.

"I think what MasterCard is doing is good for the industry," Aufseeser says. "They are setting a higher standard that promotes consumer protection…All in all, payroll cards are still the best and cheapest option for consumers who do not have a checking account with direct deposit."

MasterCard did not make an executive available for an interview, American Express would not comment, and Visa and Discover did not return requests for comment on payroll card policies by deadline.  MasterCard's new standards, which will go into effect July 1 for new programs and Oct. 1 for existing programs, will require employers to provide choices for employees on how they can get paid; free access to full wages at least  once per pay period; free access to account balance information online or via mobile; consumer education; fee disclosure tables and fraud coverage.

"The established and legitimate players do already follow similar standards," Aufseeser says. For example, MasterCard's requirement of an "opt-in" for staff is usually a state regulation, she says. "And maybe there is slightly more leverage with employer clients because the employer clients as distributors of the cards have to agree to abide by the network's rules to issue that brand of card."

For Tom Britz, vice president and general management of the corporate solutions division at TransCard, the standards are a welcome development for an industry that's gotten a lot of bad press and regulatory heat over contentions of predatory fees tied to payroll cards.

"I think there are a lot of misperceptions about what payroll cards are," says Britz, whose
TransCard recently partnered with Jack Henry to support bank-issued prepaid cards. "We think payroll cards are a good product that is more socially responsible when compared to some of the other options that are out there for employees without bank accounts."

TransCard already complies with most of the MasterCard standards, such as providing free access to full pay once per pay period, and full compliance will require only a few tweaks, Britz says.

The company's other fees for additional or ancillary uses of payroll cards vary on a case by case basis, he says.

"It depends on the partner and what they choose to do," Britz says, adding that TransCard uses the same standards for payroll card disclosures in all states, even for states with lower regulatory burdens. 

Bank issuers say they are following the MasterCard rules to strengthen consumer protections for payroll cards. "Wells Fargo's PayCard provides cardholders with features to access their pay without fees. Regarding MasterCard’s new payroll card standards, we will work with them on industry standards that prioritize the cardholder's interests," says Andrea Mahoney, a Wells Fargo spokesperson, in an email.

Payroll cards have also been subject to legal action. McDonald's faced a class action this year alleging a franchise operator in Pennsylvania required employees at multiple locations to receive their salary via debit card. The franchise owner later agreed to allow direct deposit. McDonald's did not respond to a request for comment. It charged fees for lost cards, balance queries , ATM withdrawals and online bill payment, according to the Wilkes-Barre (Pa.) Times Leader.

"Payroll cards can be a safe and convenient option for employees who don't have bank accounts, but too many payroll cards are loaded up with fees and too many employers make it hard to sign up for direct deposit to an account of the employee's choosing," says Lauren Saunders, managing attorney for the National Consumer Law Center.  "We need stronger rules so that employees can access their wages without fees and can receive their pay in the manner that they choose."

Walmart, which has also faced regulatory scrutiny for its payroll card program, contends payroll cards are a fiscally healthy way for staff to access their pay. "Our associates can use direct deposit, paper checks or a debit card, and we believe ours is one of the most employee-friendly," says Randy Hargrove, a Walmart spokesman.

Walmart does not charge registration or maintenance fees for its payroll cards, and employees can use the card for free of charge once per pay period, Hargrove says. "It's one of multiple ways that our employees can access pay,"  Hargrove said when asked about the negative press regarding payroll card fees.