Workers at Darden Restaurants chains are routinely told they must accept prepaid debit cards instead of paychecks, according to a new report from the worker organization Restaurant Opportunities Center (ROC) United. A quarter of workers surveyed said they asked to be paid some other way and were told the cards are their only option.
The practice helps the company, which came under intense pressure to cut costs from dissatisfied investors a couple years back. But it puts an expensive barrier between workers and their money.
The restaurant conglomerate has roughly 148,000 employees in the U.S. Half of those workers get payroll cards in lieu of standard paper checks. Each card shaves about $2.75 per pay period off of the company’s overhead, saving Darden as much as $5 million per year.
Darden’s bottom-line bliss means pain and chaos for those 70,000-plus workers. The cards come with a litany of fees: 99 cents for using it to pay utility bills, 50 cents if the card is declined at a cash register, $1.75 to withdraw money from an out-of-network ATM and 75 cents just to check the card’s balance. If a worker loses her card, she’ll pay $10 to have it replaced.
As Darden cuts its administrative costs, the banks that provide the cards rack up significant income on the back end. Federal Reserve Bank of Philadelphia researchers put median bank earnings at $1.75 per card per month back in 2012. That suggests Darden’s financial partners are pulling down about $1.5 million a year
Three in four Darden workers get hit with the out-of-network withdrawal fees, according to ROC United's survey of 200 workers who are paid with cards. Half of them have no access to an in-network ATM near where they live or work, effectively guaranteeing they will be paying fees to access their own money.
And the $1.75 withdrawal fee is only on the card-maker's side of the transaction. The out-of-network ATM itself will tack on another surcharge, averaging $2.88 per withdrawal -- and pushing the worker's cost to access their pay up to nearly $5 each time they convert the payroll card to actual cash.
More than half of the workers report having a balance hold placed on their cards after using them at a gas pump, a practice gas stations adopted to combat theft when pump prices were up near $4 a gallon. For a restaurant worker whose payroll card is based on the tipped minimum wage -- as little as $2.13 an hour -- there is hardly any slack to the card's balance to begin with. Gas station holds can freeze as much as $100 at a time, but even the standard $50 hold can easily mean that the next time that worker swipes her card to pay for something, the machine will see an insufficient balance -- and the payroll card company will hit the worker with another 50-cent fee for having her card declined.
Payroll cards like Darden's have proven popular with low-wage employers in recent years. More than 7 million workers nationwide are now paid using the cards, the report notes -- mostly at companies like Darden and McDonald's that pay workers so poorly that they remain eligible for public assistance programs despite working full time.
The cards proliferated over the past decade, with advocates arguing they would benefit employees as well as generate savings for employers and revenue for banks. Employees without a bank account would avoid check-cashing fees, card proponents noted. But the cards' own fees aren't necessarily much cheaper -- if at all -- and many Darden workers who do have bank accounts report being denied access to standard payroll practices that would avoid fees altogether. One overall evaluation of the pros and cons of the cards from the National Consumer Law Center in 2013 hinged on this question of worker choice, and found the cards could be net beneficial so long as everyone has the chance to opt for a different mode of payment.
In at least one case, card fees ended up pushing workers' take-home pay below the minimum wage. The workers sued the McDonald's franchisee who they say forced them to accept the cards as payment, and Chase Bank did something out of character for a high finance powerplayer: It voluntarily gave money back to the workers, refunding all of the fees their payroll cards had incurred.
That case prompted a spate of state legislative actions to police the use of payroll cards more tightly, the ROC United report notes, but roughly half of the states still have no law governing the practice. And even the states that do regulate it in some fashion do not necessarily guarantee workers can access their pay fee-free.
UPDATE MAY 12, 2016 4:07 PM
A Darden representative told ThinkProgress the ROC United report is "completely false," save for the out-of-network ATM fees and the 50-cent fee for point-of-sale denials, and accused the group of "wag[ing] a campaign of harassment and disparagement against our company for five years." Starting June 1, those 50-cent fees will disappear, and employees will be able to use an additional 29,000 ATMs nationwide without paying fees, up from 50,000 currently. It is impossible that some managers tell workers the cards are required despite company policy to the contrary, spokesman Rich Jeffers said. "That's just not the nature of our people, of our leaders in our restaurants," he said.
Author: Alan Pyke