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Prepaid Debit Cards For State Employees Get Low Marks

More businesses and state governments are paying employees with payroll cards than paper checks.

The prepaid debit cards Kansas and Missouri use to pay state employees without bank accounts got a thumbs-down this week from a consumer advocacy group.

“Most cards don’t charge you if you want to find the balance is on your card,” says Lauren Saunders of the National Consumer Law Center, “but the Kansas card, if you go up to the ATM and ask what the balance is, they’re going to charge you a dollar.”

Saunders says that’s a big problem when Kansas state employees who receive their paychecks on the cards can also get hit with a $25 fee for overdrafting their account.

Kansans can be charged “up to five of those fees a month, so up $125 a month to be taken out of their pay on transactions that could simply be denied if there’s no money on the card,” Saunders says.

Missouri state employees who receive their paychecks on prepaid cards are also subject to overdraft fees, though not the balance inquiry fees. Both states use pay cards issued by Skylight Financial/NetSpend.

In an email, Ryan Burns with Missouri's Office of Administration wrote that 1,637 state employees have opted to receive payroll cards, a little less than 3 percent of state workers. In Kansas, it's less than 2 percent of state workers.

“It’s often minimum wage workers who use these cards, people who’ve maybe been shut out of the banking system,” Saunders says. “They need a safe way to be paid.”

Saunders says in general, the payroll cards offer an advantage to paper checks, which are often subject to exorbitant check-cashing fees. State employees in both Kansas and Missouri who get paid with the cards can withdraw the entire amount at a bank, but Saunders says that defeats the purpose of issuing a prepaid debit card in the first place.

Of the 19 states that currently offer prepaid debit cards as an option for employees, only three – Kansas, Missouri and Virginia – received the NCLC’s lowest rating.

“Unlike any other state, they permit the payroll card to charge overdraft fees to their employees, and overdraft fees have absolutely no place on a payroll card or any other kind of prepaid card,” Saunders says.

John Milburn with the Kansas Department of Administration described the overdraft fee as “opt-in” protection in an email. He says the state is under contract with Skylight Financial through 2016, but the state will be putting out a request for proposals sometime next year.

“This will allow the State of Kansas opportunity to pursue additional improvements to the existing paycard program as part of that contract negotiation process,” Milburn writes.

Nearly 8 percent of Americans are “unbanked,” according to a 2013 Federal Deposit Insurance Corporation study. Another 20 percent are “underbanked,” meaning they had a bank account but also used alternative financial services, such as prepaid debit cards.

Elle Moxley is a reporter for KCUR. You can reach her on Twitter @ellemoxley.

Elle Moxley covered education for KCUR.
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