What Is a Paycard?

Heather Larson

　　Not everyone has a bank account, nor are they eligible to open one. According to a survey conducted by the Federal Deposit Insurance Corporation (FDIC) in 2017, more than 8 million households don’t have a bank account. That same survey discovered another 24 million households had a bank account, but still used other financial products outside of the banking system.

　　And some people don’t even want a checking or savings account. More businesses are switching to offering paycards. Instead of issuing paper checks to pay employees, an employer loads the employee’s wages each pay period onto a card, according to Bob Castaneda, director of Walden University’s accounting and finance programs.

　　“The payroll card generally uses a national credit card issuer like Visa or MasterCard, enabling the card to be used for cash withdrawals at ATMs, automatic bill payments and at businesses where credit cards are accepted,” said Castaneda.

　　Paycards first came into existence in the late 1990s. Since their inception, their use has grown. According to PaymentsJournal, published by Mercator Advisory Group, in 2019, 12 million employees received their wages on a paycard.

　　It’s not just individuals without bank accounts that might prefer being paid their wages with paycards. “Persons with incomes exceeding $100,000 also find payroll cards appealing,” wrote C. Sue Brown in a summary of Mercator Advisory Group’s report titled, “The Evolution of U.S. Payroll Cards in the 21st Century.” Brown is the author of the report and director of Mercator Advisory Group’s Prepaid Advisory Service.

　　How Does an Employee Get a Payroll Card?

　　Castaneda said most employers offer prepaid cards as an option to pay employees; it might be that all you need to do to get one is to ask your boss.

　　Businesses that offer paycards must have an agreement with the prepaid debit card service provider, he said.

　　If your company offers paycards and you choose this method to receive your wages, the Consumer Financial Protection Bureau (CFPB) says your employer must give you a copy of the terms and conditions, which discloses the potential fees associated with the paycard. The CFPB recommends that individuals read the conditions so they understand the potential fees they can be charged by paycard companies.

　　Effective April 1, 2019, the CFPB enacted a rule that requires card providers make certain disclosures to employees who choose to be paid via a payroll card. Because that rule has a phase-in process, employees may not see the disclosures any time soon. The process, however, involves providing a “short” form that discloses the specific fees, while a “l(fā)ong” form will disclose all fees and other details about the employee’s paycard.

　　Your employer, through the paycard provider, should provide you with training on how to use a paycard.