The Modern Company Store

We think of the company store as a relic of the Gilded Age, of one-company towns dominating the lives of their workers. We left this behind with the New Deal, right? Well, we did leave it behind but like the rest of the Gilded Age, a new form of the company store is coming back with a vengeance, with debit cards that force workers to pay high fees to use their hard-earned wages.

This population — people who tend to use few, if any, bank services — is swelling. About 10 million households in the United States do not use a bank at all, up from nine million four years ago, according to estimates from the Federal Deposit Insurance Corporation. And 24 million households that do have a bank account still use expensive financial services like prepaid cards, the agency said.

For banks that are looking to recoup billions of dollars in lost income from a spate of recent limits on debit and credit card fees, issuing payroll cards can be lucrative — the products were largely untouched by recent financial regulations. As a result, some of the nation’s largest banks are expanding into the business, banking analysts say.

The lack of regulation in the payroll card market, while alluring for some of the issuers, can potentially leave cardholders swimming in fees. Take the example of inactivity fees that penalize customers for infrequently using their cards. The Federal Reserve has banned such fees for credit and debit cards, but no protections exist on prepaid cards. Cards used by more than two dozen major retailers have inactivity fees of $7 or more, according to a review of agreements.

Some employees can also be hit with $25 overdraft fees, called “balance protection,” on some of the prepaid cards. Under the Dodd-Frank financial overhaul law, banks with more than $10 billion in assets are barred from levying overdraft fees on customers’ checking accounts.

Many fees are virtually impossible to dodge, some employees say. A Victoria’s Secret employee, Bintou Kamara, for example, said it cost her $1.50 just to transfer money from her Citi payroll card to her checking account.

Let’s be clear–debit cards replacing paychecks should be an illegal practice and it is an outrage that it is not illegal. Wages should be paid in one way–with a check for the full amount.

And since no one can trust banks anymore and there’s no way for many workers to use their money, we might as well go back to another old staple of the Gilded Age economy:

But she grew tired of being charged $1.75, in addition to the A.T.M.’s fees, to withdraw cash. After a tip from a co-worker, Ms. McLemore realized she could reduce her charges if she took out all her wages once a month. Now, supplied with one of the most modern banking products, Ms. McLemore has a decidedly old-fashioned way of handling her pay: it is stacked in a shoe box in her closet in $10s and $20s.

Can a political slogan built around not being crucified upon a cross of debit card fees be far behind?