NEW YORK -- Sharon Baker always relished getting paid. It was the paydays themselves she could do without.
Every other Friday afternoon, Baker used to bolt from her full-time job as a court clerk in Memphis, Tenn., to pick up her check from her part-time job at the Radisson hotel downtown, beeline for a credit union and stand in line through the rest of her lunch hour.
These days, Baker eats lunch instead. The solution, albeit one that subtracts $5 a month from her wages, is the result of a move by the hotel and other employers who have begun experimenting with a new approach to paying workers.
In the past year or so, a small but steadily growing number of companies have begun disbursing wages using so-called payroll cards, targeting the roughly 40 percent of all U.S. workers who still count on paper checks.
The cards are designed to cut costs for employers while increasing the financial flexibility of workers without bank accounts. But they have prompted questions from consumer advocates, wary of user fees.
Most of the cards levy charges of some type, although they are sometimes waived. One card, significantly different because it allows workers to make purchases by borrowing against future earnings rather than replacing a paycheck, raises concerns that it will encourage workers to spend beyond their means.
Despite such concerns, payroll cards - which workers can use to withdraw money from an ATM or to make purchases, much like a debit card - have begun taking hold. Visa and MasterCard have entered the business, giving the cards increased marketability. The Coca-Cola Co. endorsed the concept this week, announcing that together with MasterCard and a unit of Citigroup, it will begin marketing payroll cards to its customers in the restaurant and hospitality business.
Analysts say the cards could tap into a market of millions of workers, mostly in lower-paid service jobs, who have avoided banks and direct deposit.
"Payroll cards are an area of intense interest for a lot of card issuers," said Aaron McPherson of Financial Insights, a Framingham, Mass.-based research firm. "It appeals to a lot of people who don't have bank accounts ... who are living on cash."
Many of those workers now go to check-cashing services to access their pay, incurring fees averaging between 2 percent to 3 percent of the face value. Banks charge varying fees for the cards, negotiate unique deals with employers, and some employers pay the fees while others pass them on to workers.
Baker, for example, pays a $5 a month for her Visa-branded card. But Memphis-based First Tennessee National Corp., which issued her card and has so far signed up about 7,000 users and is working with about 100 employers, says it plans to eliminate the fee in coming months. Many of the cards entitle users to a limited number of free ATM transactions, often one a week or one per pay period.
While card features and charges vary widely, most work the same way. Workers are assigned cards with their name on the front and a magnetic stripe on the back. Each payday, instead of picking up their checks, their wages show up as fresh credit on the cards, available to be withdrawn or spent.
The cards can be used to pay monthly bills by arranging automatic debit of the account, purchasing money orders or other means such as online banking. If a card is lost or stolen, a worker notifies the issuer who sends out a new card. The cash value is stored on a computer, rather than on the card, itself, so a worker who loses a card would not lose pay.
Baker said some of her co-workers were skeptical of the new cards, but she liked the idea. "I won't have to come down (to work), go to the bank, deposit it and stand in line. I hate lines," she said.
Baker says the monthly fee is inconsequential, because it seems comparable to other charges levied by banks.
Workers can carry a balance on the card, but it does not earn interest. Employers save money because they don't have to pay the costs of processing, printing and shipping checks, or replacing those that are lost or stolen. The cards also help employers reduce many of the headaches that come with administering payroll, including the logistics of getting checks where they need to go.
Retailer Gamestop Inc. began using payroll cards after the Sept. 11 terrorist attacks shut down air transport, preventing the company from getting checks to workers at 1,200 stores in 49 states.
"We had to move heaven and earth to try to get paychecks to everyone," said David Shuart, vice president of human resources for Grapevine, Texas-based Gamestop, which also owns the Software Etc. and Babbage's chains.
Gamestop has been offering the cards to all its employees since late summer. About half the 10,000 year-round employees are now using the card and the company has eliminated paper paychecks.
Visa, which began offering its card early last year through eight banks and is working to market it through 13 others, said it has gotten the best reception from employers who have been stymied in efforts to convert many of their workers to direct deposit.
"We're finding that the industries with the highest population of unbanked employee are those that benefit the most," said Nizam Antoo, product director for the payroll card at Visa U.S.A.
In a somewhat different approach, a Pennsylvania firm, E-Duction Inc., is marketing what it calls a payroll deduction card, which does not replace a paper check or direct deposit. Instead, the company's card, which carries a MasterCard logo, allows workers to make purchases from retailers and then have the amount deducted in equal installments from their next four paychecks.
"It's access to credit that, otherwise, they (workers) would have to pay an exorbitant fee for," said Tom McCormick, chief legal officer for E-Duction, which charges an annual fee of $29 to $36 for its card. "It's a new way to pay for things."
The cards, both those replacing paychecks and those deducting from payroll, raise questions from consumers advocates. While they favor anything that frees workers from having to use check-cashing services, they are wary of fees on payroll cards and the debt load incurred by users of the payroll deduction card.
"Is this a fair way to pay people so you're not shifting the cost of getting paid on to the recipient?" said Jean Ann Fox, director of consumer protection for the Consumer Federation of America.
Fox said she'd prefer to see more of the workers targeted for the cards given help in starting traditional bank accounts that would help them avoid check cashers and improve their financial solidity.
But Robert Sims, a First Tennessee executive in charge of the payroll card program, notes that the bank has signed up more than 2,000 of its 7,000 payroll card users for checking accounts since the program began. As a result, he said, the bank has begun to rethink its approach to a group of lower-paid consumers who have usually shied away from banks.
"Conventional wisdom within banking is that you need to go after the affluent market," Sims said, "so to go after a market that has basically avoided banks, it was not only new to us, but to that market as well."
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