Prepaid debit cards have problems, especially when used for payroll

Prepaid debit cards sound like a good idea, especially for those who do not have bank accounts or credit cards for one reason or another.  All you have to do is put the money in and you can use the card like a debit card, withdrawing money from ATMs and making purchases up to the balance deposited.  But these cards are not without problems.

Perhaps the main problem is high fees.  There can be fees for every deposit and fees for a balance inquiry.  Some cards charge as much as $2.25 for an out-of-network A.T.M.

The other common problem is account freezing.  If you make a large withdrawal or too many withdrawals in a short period of time, your account may be frozen, even when there is still a positive balance. Nothing can be more frustrating than being unable to get your money when you need it.  And customer service is often terrible.

When these cards are used for payroll, the fees can eat into an already low pay check, so the Attorney General of New York, Eric T. Schneiderman, has decided to look into the practice of paying employees with prepaid debit cards.  “We are concerned about excessive or insufficiently disclosed fees which may unduly reduce employees’ take home pay,” Mr. Schneiderman’s office told employers who use this system for payroll.

Sometimes these cards are the best choice you have, but make sure you understand the fees and drawbacks.  If your employer offers you this form of payment, ask them about other options.  They should have some.

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