The payday ritual has evolved significantly in recent decades. Thanks to technology and innovation, most workers today have their wages deposited directly to their bank account rather than scrambling to deposit a paper check at their local financial institution. Although it’s a convenience largely taken for granted, this innovation has made workers’ lives easier and streamlined the payroll process for employers.
More recently, the ability for employees to have their wages loaded directly onto debit-style cards has successfully brought many “unbanked” workers – those without bank accounts or access to conveniences like direct deposit – into the financial mainstream and away from fringe services like predatory check cashing and payday loan services.
But in a classic display of California-style overregulation and onerous mandates on employers, Senate Bill 931 would impose a de facto ban on the use of these cards, eliminating an option for workers who rely on this option and pushing them further out of the financial mainstream.
Governor Jerry Brown should continue to give workers a choice and veto this unnecessary bill.
The union organizations backing SB 931 have presented a solution in search of a problem. They say the law is unclear, when in fact state regulators have stated that payroll cards are legal and clearly covered by the same law governing paper checks and direct-deposit. In all cases, workers must have access to their full wages without any discount. With payroll cards, workers do indeed get free access to their full wages. Federal law, meanwhile, already requires the cards be FDIC insured, making SB 931 duplicative in this area.
More than immediate and free access to their full wages, payroll cards provide workers who don’t have bank accounts or credit cards an ability to pay bills online or by phone, make Internet purchases and other e-marketplace transactions. These cards also help workers avoid expensive check-cashing services and the need to pay bills with money orders, which research finds cost these workers more in annual fees than the use of payroll cards.
In a tough economy it is important to have choices. Make no mistake. Everyone has a right to make their own choices. The payroll card programs offered by California employers must be optional and not require employees to pay to participate. They must ensure free, full access to wages and should come with at least some of the traditional protections of credit cards, such as free purchase protection and dispute resolution services and access to the account balance. If there are examples where these parameters are not being met, legislation clarifying these requirements would be reasonable.
The fact is SB 931 goes well beyond these principles and essentially mandates that employers assume the cost and liability of providing free banking services to workers. The bill’s requirements for free ATM transactions in and out of network, free customer service, free overdraft protection and other services traditional banking customers do not have, makes the payroll card no longer a viable one for employers.
Added to this are nonsensical portions of the bill such as a requirement that employees turn in hard-copy sign-up forms if they want this electronic payment method. In short, SB 931 takes an innovation that helps streamline the payroll system for employers and workers, and makes it unworkable and prohibitively expensive.
Under this scheme, payroll cards will cease to be an option.
That’s unfortunate and most damaging to the workers who will be forced back into a short list of limited choices for accessing and spending their hard-earned wages.