Prepaid Cards Benefit Union Members and Streamline Payroll Practices
by Mary Toole
In September 2012, the International Alliance of Theatrical Stage Employees (IATSE) Local 18 changed the way its members are paid by replacing paychecks with Global Cash Cards, re-loadable prepaid debit cards offered through MasterCard. Members now choose whether to be paid by re-loadable pay card or direct deposit to a bank account.
“The problem with paychecks is that they get lost in the mail or delivered to the wrong address and not returned,” said Patricia Chepeck, CPP, benefits and payroll manager for Local 18 in Milwaukee, Wisconsin. “Sometimes, even after we have stopped payment, banks still process them.”
The United Food & Commercial Workers International Union (UFCW) Local 8—Golden State in Roseville, California also recently introduced Member Benefit Cards, another type of prepaid debit card from MasterCard. The embossed card can be used as proof of membership as well as a means of receiving pay, discounts, and rebates. Those who choose to use pay cards receive a text message or e-mail to let them know that their earnings are available.
Across the board benefits
In addition to helping significantly reduce union administrative costs, pay cards provide members with convenience and versatility, according to Chepeck who is a member of the American Payroll Association. Any employer or venue that hires union workers and accommodates direct deposit can electronically transfer wages onto a pay card – making the card portable between job sites, states, and locals.
Union members can access cash, pay bills or purchase goods with paycards – in person or online. They can make deposits to a card or transfer value to another paycard that can be used by a spouse or family member. As long as the card is registered, the funds available through it are FDIC insured.
In addition, prepaid debit cards provide a cost effective payroll solution for members who don’t have checking or savings accounts at traditional banking institutions, as well as those who have accounts but still rely on alternative financial services like check cashing companies and pay day loan providers. According to the FDIC, about 28.3 percent of Americans were unbanked or underbanked in 2012.
Pew Charitable Trust’s Safe Small-dollar Loans Research Project found that the average payday loan customer takes a two-week $375 loan. The customer typically remains indebted for about five months, pays $520 in finance charges, and repays the loan with a windfall. One in six repays their loan with a tax refund. “It costs so much to get out of debt,” Chepeck said. “We had one member take money from his retirement account to pay off a pay day loan.”
Much has been made of the fees associated with pay cards; however, according to Chepeck, providing clear information and educating union members about how to best use their pay-cards can help minimize fees or eliminate fees altogether. For instance, Local 18’s Global Cash Card has no enrollment, annual, or monthly fees, and the first withdrawal is free. After the first withdrawal, there are charges for using the card as a debit card or to withdraw cash, but using it as a credit card and signing for purchases is free.
While checking accounts can be more effective than payroll cards for experienced bank users who can maintain the minimum balance requirement, a 2013 report by Pew Charitable Trusts found that prepaid debit cards tend to be less expensive than checking accounts for consumers who are inexperienced with banking. The study found that inexperienced consumers spent about $88.50 a month on checking accounts as compared to $29.53 a month on prepaid cards.
Making paycards pay off
The keys to paycard success lie in properly negotiating fees with card issuers and providing clear best practice guidelines to members who use them. Before negotiating a prepaid debit card option, union leaders should familiarize themselves with the fee options of various cards, as well as state laws and regulations.