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Payroll Debit Cards on the Rise, and so Are Hidden Fees

By Claire Gordon

A McDonald's employee filed a class action lawsuit last week, claiming she was required to receive her wages through a debit card packed with fees. But this is no isolated case. Research shows that more employers are paying workers through debit cards.

According to a 2012 report from the business research firm the Aite Group, $42.8 billion dollars will be loaded onto these cards this year, double what is was in 2010. Employers with seasonal and transient workers, such as in the retail, restaurants, and construction industries, are more likely to use debit payroll cards, in part because their employees are less likely to have a bank account to deposit a paycheck.

On the surface, payroll debit cards are win-win: Companies can reduce the cost of processing payroll and distributing paper checks; and workers without a bank account have easy access to their hard-earned cash, without having to pay the high fees of checking-cashing stores.

Except many of these debit cards charge fees. Firstly, like regular bank cards, any ATM outside a specific network will charge a couple bucks per visit. But there's often a little something extra too on other transactions.

There are no figures out there for how many of these debit cards are laden with sneaky fees, and the fees on a given card might change depending on the employer, and its contract with the card-provider.

But according to Michelle Jun, a senior attorney at the Consumers Union: "It's not completely atypical to see these types of cards have high fees, to access money at an ATM in particular."

Michael Cefalo, the attorney for the former McDonald's employee filing suit, says his law office has been inundated with hundreds of phone calls in the last week. "It crosses the border in many industries: fast food, some retail industries, a whole bunch of things," he says. "It's across the board."

Why so popular?

Comdata first developed a payroll card over 20 years ago for truck drivers, who often struggled to pick up paychecks given their days on the road. The practice spread, particularly in industries where workers have no bank account to deposit a check. Statistics show that nearly one in 12 American households doesn't have a bank account, and one in five use money services other than a traditional bank.