Walmart, the nation’s largest employer, has recently made a change that more employers will be making in the next few years. Instead of issuing paper checks and paystubs for employees who do not have direct deposit, they will be issuing payroll debit cards and electronic statements. Pay will be deposited automatically onto these debit cards each payday.

Workers will have one free ATM transaction per pay period, if they want to withdraw all the money as cash. They may also withdraw their money free at Walmart and Sam’s Club registers. The debit card will also function as a regular debit card. Additionally, employees will receive checkbooks, if desired, so that they can write checks on the account.

Initially, I reacted negatively to the idea. It made me think of employer-owned towns, where all your payment, banking, and purchasing were at the discretion of the employer. However, as I thought about it further and read more, I began to consider two aspects of the program which may prove beneficial to employees:

  1. No More Check Cashing Fees. If employees want to, they should be able to withdraw their entire paycheck, free. I live in a lower-income area with a number of check cashing places. You often see people without bank accounts in there on Fridays and Saturdays–this could save employees money.
  2. De-facto Bank Account for People With Bad Banking History. Many people who want bank accounts can’t get them because ChexSystems reports their bad banking history. Maybe they bounced a few checks, overdrew too much, and banks won’t risk giving them an account. If it’s convenient for the employer payroll system to give them an account, it’ll be doing some people a favor. The account will be limited, of course, since only money earned at Walmart goes into it, you can’t do other deposits.

Will this turn out to be as good as it sounds?

It could.

If the program is implemented well (and it won’t be Walmart running the program, they’re using a company which specializes in this kind of work), then it could be a real benefit to workers who don’t have bank accounts. No more check-cashing fees, no more having to go to the store to pick up paychecks, and a real (limited) bank checking account. For that to happen, Walmart and its payroll partner will have to explain the specifics of the plan to the employees. If the debit cards just show up one week, this could prove far less useful than it has potential to be.

For workers who don’t understand the system, it’ll be like banking anywhere else would be for them–fees, possible overdraft issues, etc. From what I’ve read, it doesn’t sound like this one would be any worse than other banks. And if it proves to cause trouble, then they’ll still be able to withdraw all their money in cash and work with that instead.

What do you think? Too complicated or something that’ll solve a lot of problems?

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Patrick September 11, 2009 at 7:53 am

I think it is an awful idea. No doubt they are doing it because paper checks cost them money, and they probably received a sweetheart deal from the debit card company to do this. (I wonder if there are any backdoor fees?).

At the minimum, employees should have the option of direct deposit at their bank. Direct Deposit has very little associated and is more flexible for the employee.
.-= Patrick´s last blog ..Where to Open a Roth IRA Account =-.

mrsmicah September 11, 2009 at 8:47 am

Sorry I didn’t make it clearer throughout. As I mentioned up front, this is only for employees who are currently receiving paper checks. Direct deposit will continue as is.

If they forced all their employees to take money this way, then it would be a much worse practice. However if an employee wants direct deposit, they can still get it.
.-= mrsmicah´s last blog ..No More Paper Paychecks at Walmart =-.

Erica September 11, 2009 at 9:01 am

I work at a public library, and we’re quite frustrated by the increasing trend to eliminate paper checks and statements by many companies who employ lower-paid workers. Although libraries have always been pro-technology, most of the employees at places like Walmart don’t have access to a computer other than at their public library (if they can get there). They often have little to no computer skills. We’re happy to help them, but it seems unfair that these companies put these people in such an awkward position – they often have great difficulty accessing their information and end up so frustrated. These companies should at least provide computer access at work, with training, so that people can get to this very vital info…

Patrick September 11, 2009 at 9:06 am

D’oh! I skipped right over that part!

OK, then it’s not such a bad idea. Though I’m pretty sure employees can get their checks cashed at Wal-Mart with fewer fees than the check cashing companies charge. I guess it depends on whether or not the prepaid debit cards come with any monthly fees and how much they charge for ATM transactions. Not all businesses take debit cards so people will certainly need to withdraw cash for many transactions.
.-= Patrick´s last blog ..Ohio College Advantage 529 Plan – $25 for New Accounts =-.

Bucksome September 11, 2009 at 9:16 am

I think this is a good thing. My employer of 15 years didn’t offer direct deposit until the past year and either all employees signed up or we would not have it (small company).

Since many of us travel for work, it’s been great to know your money is in the bank on payday even though you’re not in the office.
.-= Bucksome´s last blog ..3 Ways I Disagree with Dave Ramsey =-.

Robert Krumpp September 11, 2009 at 10:32 am

I just want to know how long it will be before Wal-Mart gets sued over it. The way I see it is that some poor schlub writes some hot checks and gets in trouble over them. Then, they’ll claim it’s Wal-Marts fault for implementing this policy. There will be lots of hand wringing and posturing, the new plan will get an opt out clause, and the lawyers will walk away with piles of cash.

Meanwhile, Mr. or Mrs. Schlub will get another account somewhere and get into check trouble there too. Or, they will use check cashing places places and just get some credit cards when they run out of cash.

Maybe I’m just cynical. I think it would be a great program *if* people had the choice. I’m a big fan of direct deposit for the reason that Bucksome is; I don’t have to worry, the money just “shows up”.

Aryn September 11, 2009 at 12:30 pm

I’ve read really bad things about these new paycards. For example, they get one debit free, but the rest of the debits have fees, so if they use the card like an actual debit card they will be charged for each purchase. That could quickly eat up a substantial portion of their pay.
.-= Aryn´s last blog ..Long-Term Money Saver: Learn to Sew =-.

Jesse September 11, 2009 at 1:03 pm

This could be good or bad. We will have to see how it plays out. I worry that having these little debit cards will instill even more of a credit card frenzy in the population and people will again spend beyond their means. Who knows.
.-= Jesse´s last blog ..Reader Feedback =-.

MoneyMateKate September 11, 2009 at 1:08 pm

My best friend got her unemployment benefits by debit card, which really p’d her off – she had no choice in the matter, and the only way she could turn it into cash was to drive 25mi each way – back when gas was $4+ a gallon. You can’t pay the rent/mortgage by debit card. I’m generally against this trend.

However, since direct deposit is still an option, I don’t see the debit card as a whole lot different than a paper check for those who’ve been getting them that way as long as you’re taking the whole wad at once (which you would with a check anyway). I’d like this plan a whole lot more if they allowed more than one withdrawal/transaction per pay period.
.-= MoneyMateKate´s last blog ..Would you want to know if you had a ticking health bomb? =-.

mapgirl September 11, 2009 at 1:12 pm

I’m not a fan of these cards b/c frequently I end up forking over <$2 for an ice cream at the corner store. If there was a $5 minimum charge, I'd be screwed and either buy more stuff or else not get my treat. I am frequently irritated that the lunch buffet across the office has a $10 minimum for electronic charges, which they usually waive for me b/c they know I'm Korean. But still, the transaction costs are going to be paid by the consumer eventually.

Will Walmart also be giving the paycheck card people a little more money for going with this option? Probably not. So in the end, the worker will end up with less money for themselves.

How exactly do you take out cash with these things anyway? If you were a money under the mattress type, these things are a nightmare. Not that I am, after all I love me my ING online account. It's the principle of the thing. How exactly does this let people use cash for their transactions? Most babysitters don't take debit or credit.
.-= mapgirl´s last blog ..Would I Know If I Was a Hoarder? =-.

mapgirl September 11, 2009 at 1:17 pm

OOPS. I re-read your post. I see, so they can basically empty out the register for cash. I hope that is a fee-less transaction for them.

hm… Perhaps this also part of Walmart’s larger strategy to invade the banking sector. (Something they’ve already tried to do.) By getting their underbanked workforce to use these they move to de facto banking in a regulation avoiding manner.

.-= mapgirl´s last blog ..Would I Know If I Was a Hoarder? =-.

Matt Jabs September 11, 2009 at 1:29 pm

Well, I boycott Walmart because their entire business model destroys local economy by taking away revenue from local farmers, producers, and service providers and delivering it to an enormous multi-national corporation.

Oh man… I’m that guy aren’t I – oh well. 🙂

Per this small step toward elimination of paper checks… since it is Walmart, I would lean toward the “I think it’s evil” camp, but as MM points out – I’m sure it will be positive for some… especially those who cannot manage their own bank accounts.
.-= Matt Jabs´s last blog ..The Modern Pocketbook – A Spending Journal and a whole lot more! =-.

mrsmicah September 11, 2009 at 1:31 pm

Lots of good points and questions. Since some people may have missed it, I wanted to mention again that these were for people who’d already be physically picking up their checks at stores on payday and cashing them. Hence driving to withdraw & paying fees were already par for the course.

@Erica I thought of the same thing. I hope they have some place where employees can access these online paystubs without much in terms of web skills. Otherwise many will have to try it at libraries and such.

@Bucksome I also like the convenience of direct deposit. I didn’t have it at one job last year (through problems w/name change and whatnot) and it was a real pain.

@Robert It’s true, Walmart will be acting as a bank (or the company they’re hiring will). That could cause a whole nother set of liability issues.

@Aryn were these the payroll debit cards? I remember reading in one news article that they wouldn’t have transaction fees. ATM fees, but not cashback or store fees.

@Jesse I wonder how Walmart plans to give statements so that people know how much is left in their account.

@MoneyMateKate it’d be a travesty (and like those employer-run towns) if that’s the only way people can get it. As you say, checks pose a lot of problems too. I think while ATM transactions have fees (after the first), normal debit doesn’t.

@mapgirl yes, the register and 1 ATM transaction per pay period. Plus they can get a checkbook (which could be problematic by introducing the issues of bouncing checks, but also means they could pay the babysitter w/cash or check).

@MattJabs it’s ok, I’m that girl. 😛 I could count on my hand the number of times I’ve been there in the last 5 years. At least there with intent to purchase, sometimes I went in college to hang out w/friends who were shopping.

mapgirl September 11, 2009 at 1:34 pm

Employees could probably just swipe their card at a register to get the balance on it, similar to the way gift cards work.

So what happens if a card is stolen? Can the store manager issue a replacement on the spot and cancel the other card?
.-= mapgirl´s last blog ..Would I Know If I Was a Hoarder? =-.

mrsmicah September 11, 2009 at 1:37 pm

@mapgirl good point about the swiping, that’s probably true.

I expect it would work like other debit cards, but the store should keep the # on hand in the break room with other emergency company numbers (though this is Walmart we’re talking about…).

katy September 11, 2009 at 1:47 pm

I think it is just a way to save money. The company I work for has been doing this for years and most people signed up for direct deposit. It doesnt have to be a checking account that you get it deposited to, it could also be a savings account.

Shannon September 12, 2009 at 12:27 pm

Thank you for explaining this as the TV news did not mention those with direct deposit did not have to change to the card. I see pros and cons. What I can’t forget is a few years I worked in an office where people applied for low income housing. Of those who worked the most prevelant retailer was WalMart. I often thought how society looked down on these hard working poor people when in fact they were hard working under paid people. Seems like corporate welfare to me but the negative labels are pasted on the worker not the employer. I know many who say well they should just go to school. Some do. ALL were not blessed with the ability to do jobs that require more intelligence and are doing the best they can. What would the rest of us do without them? What would you do without your local dry cleaning clerk or the person who washes your car? It seems to me that dedication and years of service should provide someone a living wage and that tax payers should not have to support people because those employers who CAN afford to pay better won’t. Oh well. I doubt it will ever change for the better.

Dawn/FFL September 18, 2009 at 10:32 pm

As a cash office employee of Wally world I have two things to say about this
1. It hasn’t rolled out to use yet, no emails or info from management about this
2. Oh God kill me now!

Change is never easy and at wally world it sux big time – this will not go over well and I dread the effect this may have in other ways. I won’t mention them for fear they may come true.
.-= Dawn/FFL´s last blog ..The Frugal Millionaires in Summary =-.

Jamie September 19, 2009 at 9:36 pm

My guess is that they are going to hire GE MoneyBank to handle this in their stores. My mom purchased a pre-paid debit card for me at WalMart and GEMB is the one who issued it. A few other points- you get one free ATM withdraw, but at most places, this must be done in multiples of $10, some $20. That means if my paycheck is $192.88, I am leaving $12.88 on the table if I withdraw my money at one of the $20 multiple ATMs.

The cash card that my mom got me had a $3 fee per month to maintain the card. You’d better believe that I used as much as possible in the first 30 days to avoid this fee! There are banks that offer free checking- it’s unfortunate to think of a company CHARGING someone to maintain that account when they are actually earning interest on the money and not passing it along to the Wal-Mart employee.

I never liked the idea of pre-paid debit cards due to all the associated fees and I like them even less as the only option for an employee who doesn’t have direct deposit.
.-= Jamie´s last blog ..Kudos to Publix and Kraft! =-.

Dad September 20, 2009 at 9:25 pm

While I recognize that this move is a cost savings move for the sake of Wal Mart, it doesn’t mean it will be bad. At least from what I’ve read in various online journals, it sounds like a better plan than many I’ve heard about including many prepaid debit cards or credit cards (the kind you buy at bank, grocery store or your local convenience store which have all sorts of hidden fees).

The big issue I see is workable education. That will require a time commitment by Wal Mart (not real likely) or off-hours commitment by employees to go to education sessions off the clock (not really likely either).

I believe I could make such a pay system work for me with no cost (and saving on not having a check cashing fee). However, having worked with banking since my college days, that is just experience and thinking.

The big problem is that a large segment of the US population is not bank oriented. Some of this is because you need to be ‘financially reliable’ to get a bank account. A second big problem is that many of this segment grew up and lived so far in a cash oriented manner. I once worked for a technical manager who went so far as going to the bank every pay period (he had an account) and cashed his rather nice sized paycheck into paper money. He might even deposit it back, but he wanted it to go through his hands. I don’t know what led to that. Probably some experience he had or some ‘wisdom’ passed on by his parents and family.

There are a lot of ways to avoid fees and use the system to your advance. The problem, and it is a very big one, it takes knowing how or some suggestions from people who know how. I foresee trouble even though this system looks pretty fair and better than I expected from Wal Mart.

Addendum from WSJ Walmart article:

1. It says: Workers will be able to use the cards wherever debit cards are accepted, including at ATMs. I am assuming here with a degree of uncertainty that use as a debit card for payment for a transaction (grocery store, restaurant that accepts / debit cards , hardware stores, whatever store that usually accepts credit and/or debit card will not incur a fee. As I understand the rules of Master Card (and Visa for that matter), the merchant who has arranged to be able to accept Master Card or Visa logo’ed cards will accept debit cards but is allowed to not offer cash back (I think on an everyone or nobody basis. They may decline cash back for everyone or must accept everyone). Cash back could be an issue as I don’t know the rules about that. However I feel it likely that if the store normally offers cash back on debit purchases (such as ShopRite, Pathmark, and Giant) would probably allow the same privilege on this card.

2. Another statement that intrigued me was “will be able to withdraw cash without fees at Wal-Mart and Sam’s club registers”. Does this mean that when at their work site (or any other Wal Mart) they would be able to go to a register (in the line) and withdraw cash without making a purchase or do they need to make a purchase. I would assume the policy would limit this option to non-working hours including break time. If that is true, the problems are minimized if they understand it. If they need to make a purchase it probably requires some sort of thinking that may not come naturally to people inexperienced to banks (and to many with bank experience). If there were fewer issues on dealing with this type of stuff by the general population, there would be a more reduced need for you blog for which there appears to be a high need.

As I said above, I think learning how to use it will be the biggest problem and those Wal Mart workers who have the least experience with bank accounts are more likely to lose money or avoidable fees. The lady who complained about buying ice cream with needs education (and she falls into the category of a very large population in this country, so this is not a personal disparagement but a comment on the poverty of financial education in our public schools). I rarely use a card on something that small and many stores don’t allow it. But I take advantage of cash back in larger purchases (especially at the grocery store) to keep a fund of cash in my pocket. I rarely use an ATM at all. For those times I need one, I’ve also learned the local ATM’s that do not charge fees.

Justin September 27, 2009 at 3:47 am

I fear this may be the start of something sinister. Everyone person has the right to be in control of their earnings. Without it, (in a time of great economic depression) a company or government could freeze your account and clean out every penny you spent your whole life earning. And for anyone who has grown up on the streets, you know the saying, “if you don’t have cash, you don’t get the goods.”

Dad September 27, 2009 at 5:46 pm

Justin’s comments are interesting. In many ways he echos the very thoughts of many who came out of the Great Depression of 1929-30s who were afraid of banks. I’ve known many of them. But his point that money in a bank or debit card balance, is basically under the control of who manages the card is quite well thought out and accurate. Maybe the fears of those from the Great Depression as still alive AND still make sense.

Jim October 19, 2009 at 1:41 pm

My company introduced paycards ealier this year, our employees love the service, it is great as long as it is used properly. People are allowed one free withdrawal per pay period, and this can be done at an ATM or bank teller. Our card has a VISA logo, so it can only be used at a VISA bank to make a teller withdrawal. Teller withdrawals solve the ATM issue of only being able to withdraw in multiples of $10 or $20. The card can also be used to make purchases in store and online. there is no fee for these transactions as long as the “credit” option is selected, not debit.

The Walmart situation will be interesting to follow, many states (Michigan, New Hampshire, Maryland, Virginia to name some) won’t let employers mandate paycard or direct deposit, it must be voluntary. I am curious to see if walmart gets away with this.

Dee December 15, 2009 at 3:41 am

It’s not worth the hassles. I had a big problem trying to get my money out of a debit payroll card after I lost the card and reported it lost. I reported it lost 10 days before the next paycheck. Even though they close the card they don’t completely close the account, so funds still was sent through. They said I had to be sent another card, but after everything that happen and the risk of my money being stolen, I did not want another card. When I closed the account I didn’t think they would still send funds through it. They tried to give me a pre-check, but it could not get activated because the account was closed. It took a while for them to figure out what to do and said to check back on Monday to see what the supervisor says. The only way I could get my money out was for them to temporary open the account so the check could be activated and then close it right after. I didn’t like that because it meant my money could be stolen. The debit payroll card does seem to go against state law which says it is permitted if it is voluntary on the employee’s part which I did not choose. My employer Sears seems to think it is legal, from my state it doesn’t seem to be check:
They are not allowing me to cancel this debit payroll card.

JD February 12, 2010 at 6:29 pm

I found this article through googling information about employers mandating direct deposit or pay cards. I recieved a notice from AppleOne (a temp agency) with my paycheck that they will no longer be issueing checks, and gave forms to sign up for direct deposit of thier pay card. You get one free ATM withdraw, balance inquiry, and over the counter withdraw per “pay load” with fees for additiona transactions, which is fine (14 different fees altogether). The ones I have a problem with are the monthly maintenacne fee of 3.95 and to a lesser degree the 0.25 POS transaction fee (which stands for Point Of Sale, not to be confused “this POS pay card”, which stands for something else). So if you are unable or unwilling to get a bank account then this fee is force on you.

Nevada statute NRS 608.120 clearly states I must be paid with a check unless I agree in writing to some other instrument. A reasonable law is if companies are going to force these pay cards on unbanked employees they must be able to access thier money without penalty (even if it is “one free transaction”) and have no maintenance charges. I’m going to stick to my guns and not sign the pay card agreement. I wouldn’t mind if they terminated my contract over this, I’ve been working as a temp for 6 months now and hate it.

Patrick November 17, 2010 at 10:42 am

i have one of these cards, and i really like it. its convienient, and along with direct deposit, it might be the best way to get paid iv ever come across

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