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Payroll cards offer convenience at lower cost

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Stein Mart's Hawkins said the transition from payroll checks to pay cards went much more smoothly than the company anticipated. They brought in a third-party firm to create and deliver a presentation to Stein Mart's employees around the country on how the new program would work.

"There was absolutely no resistance -- we were stunned," Hawkins says. "We received a question from one associate in one store, that was it." The real payoff came when hurricanes Katrina and Rita devastated the Gulf Coast; Stein Mart was able to pay employees without interruption because it had the program in place, Hawkins says.

Cautions on fees
One of the biggest drivers behind the growing popularity of payroll cards is that both Visa and MasterCard began to back them in recent years. By branding the cards under Visa and MasterCard logos, users have access to their signature-based debit networks at retail locations in addition to the PIN networks. 

While payroll cards are a better deal for both workers and employers on many levels, Consumers Union cautions both sides to ask some tough questions before adopting them as the preferred means of distributing wages. CU advises companies considering payroll cards to ensure that the company issuing the payroll card is financially sound.

Employees are advised to make sure the cards have the same consumer protections afforded debit cards tied to personal bank accounts. Federal law protects consumers with bank accounts from fraud and loss if their debit cards are lost or stolen. The Federal Electronic Fund Transfer Act will extend these protections to payroll cards, but not until July 1, 2007.

Fees may also be an issue until all states put regulations in place. Payroll-card issuers may charge a variety of fees, from a basic monthly maintenance fee to fees for inactivity or fees for using the card at an ATM beyond an allotted number of withdrawals. Each provider's fee structure is different, so employees are urged to press their employers to shop around for the best deal or have the option of opting out in favor of a paper check.

James A. Ambrosio is a freelance business writer based in Trenton, N.J.

Bankrate.com's corrections policy -- Posted: Dec. 20, 2006
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