Payday loan limitation to direct deposit

Posted by admin on November 12th, 2011 filed in Finances, PayDay Loans

A traditional limitation to direct deposit has been that employees without bank accounts could not participate. But, in recent years, numerous firms have developed "payroll cards" that enable all employees to receive electronic transfers of their wages. There is much variation in the details of these cards but most have the following features. An employer gives its participating employees an ATM-type card. A participating bank creates "virtual" deposit accounts for all workers receiving the card for payday loans. The account is an accounting entry that is credited when an employer pays wages electronically.

The employee can remove hinds from the account using the employer-issued payroll card at an ATM machine or as a debit card at a merchant. The employee cannot overdraw the account so it can be offered to those with had credit histories or a history of mismanaging a checking account. The fees that employees pay for using the pay-roll cards vary widely depending on the company that issued the card, the participating bank’s fees, and the willingness of an employer to shoulder some of the cost. To date, there are no reliable reports on the success of the payroll cards.

The promoters report that many employers like the cards be-cause they reduce the employers’ payroll processing and distribution costs. To comply with state labor laws, however, employers can-not generally mandate that employees switch to the cards. Celent Communications, a commercial research firm, estimated that 6 per-cent of unbanked workers were using the cards in 2002. The American Banker newspaper quoted Celent’s report as saying that "convincing . . . [unbanked employees] to accept a piece of plastic as their paycheck is quite difficult".

Nevertheless, these cards may find growing acceptance if unhanked employees begin to see other unbanked workers using the cards and hear favorable reports. Such a development would clearly threaten the traditional check-cashing business. A second threat is the automated check-cashing machine. Marketed by several companies, they resemble traditional ATMs. Customers insert their paychecks into the machines. The machine uses a personal identification number or some other method to identify the customer, it reads information from the check and uses a software algorithm to determine whether it should cash the check. lithe check is approved, the machine dispenses the cash. If it is not, the machine returns the check to the customer. Frequently, the machines are equipped with telephones linked to a processing center.