Thea Garon

A Better Way to Get Paid? : Defining quality for ‘payroll cards’

For low-income employees who lack access to bank accounts, payday often comes in the form of cash or a paper check. But cash can easily be lost or stolen and checks often require a costly or time-consuming visit to a check casher. Payroll cards can be a good alternative.

A payroll card is a reloadable prepaid card offered by employers. Each payday an employee’s wages are deposited into the payroll card account via direct deposit. The employee can then use the card to make purchases in stores or online, or they can withdraw cash from ATMs or at retail locations.

Today, this option is increasingly popular for both underbanked and mainstream Americans. In 2013, employers loaded $30.6 billion onto more than 5 million payroll cards[1].

While payroll cards are fundamentally high-quality products, their design and delivery is not uniform across the industry. For example, some cards carry high fees. And certain employers have been accused of requiring employees to receive their wages on a payroll card, rather than offering them multiple options to receive their pay—a practice that runs afoul of federal and state laws. In the wake of recent lawsuits, state legislators from Hawaii to New York have introduced legislation that would further regulate and, in some cases, eliminate providers’ ability to offer the cards period.

But maybe there is a better way to respond, a way that doesn’t risk limiting employees’ access to the high-quality cards the industry has to offer.

Instead, we should encourage the industry to work together to ensure that high-quality programs and services are available to all employees. To help with this, CFSI has published the Compass Guide to Payroll Cards. The Guide outlines what a quality payroll card should look like by providing recommendations across a range of practices including: Choice, Safety, Affordability, Transparency, and Convenience.

The Guide’s recommendations are based on CFSI’s Compass Principles—Embrace Inclusion, Build Trust, Promote Success, and Create Opportunity—standards of excellence for the design and delivery of financial services. At the heart of the Compass Principles is a belief that the financial services industry can actively contribute to improving the financial health of Americans.

Some in the industry have already begun. For example, MasterCard and Visa have announced commitments to implement recommended practices from the Guide. MasterCard has committed to incorporating CFSI’s recommendations into the company’s existing Payroll Card Standards to promote Choice, Transparency and Education. Visa has committed to developing an educational course for employers, incorporating recommendations from the Guide to ensure they offer payroll card programs in a high-quality way.

The Compass Guide to Payroll Cards sets a high bar. But we believe payroll cards can be a force for good in the lives of America’s workers.

[1] Mercator Advisory Group, “Eleventh Annual U.S. Prepaid Cards Market Forecasts, 2014-2017,” November, 2014.

Thea Garon is a Research Analyst, Insights and Analytics at the Center for Financial Services Innovation.

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