Businesses under investigation for paying employees with pre-paid debit cards

The New York Attorney Generals' office wants to know if paying employees with these cards violates labor laws

HOUSTON - More than 20 businesses are under investigation, Wednesday, for the way they pay their employees.

Instead of a paycheck or direct deposit, they give employees their wages on pre-paid debit cards.

The New York Attorney Generals' office wants to know if paying employees with these cards violates labor laws.

It has sent letters to 21 companies requesting information and documents about their payroll card systems.

"There's a fee associated with almost everything," said former Costco employee Jared Novy.

Novy said he chose to get paid via an employee pay card; but he didn't realize how expensive the decision was until he needed to use some of his hard-earned money.

"I withdrew $60 the other day, and it charged me $2.50 from that terminal and $1.50 for the charge to take it out," explained Novy. "So that's $4 for getting out your own money."

The cards are issued by Meta Bank; but since there are no affiliated ATM's, Novy says there is a charge every time an employee wants to access the cash they earned.

A Costco spokesperson told Local 2 that each Costco store should have a terminal inside where paycard holders can make two free transactions per pay period.

Novy worked at a store that didn't yet have one of those terminals.

We obtained the letter the New York AG sent to Costco and 20 other companies this month.

The AG is requesting "documents that show employees provided written consent for Costco to pay their wages by payroll card," "documents to show how employees can opt out of the payroll card." and "documents disclosing all fees employees may be charged in relation to the payroll cards."

The company's that the NY AG sent letters to are Walgreens, Wal-Mart, Home Depot, Limited Brands (Victoria's Secret, Bath and Body Works, Pink, La Senza, and Henri Bendel), The Jan Companies (owns Burger King at 106 Fulton Street), Wendy's, Costco, Darden Restaurants (Red Lobster, Olive Garden, LongHorn Steakhouse, Bahama Breeze, Seasons 52, The Capital Grille, Eddie V's, and Yard House), Ruby Tuesday, Dollar Tree, Petco, White Castle, Time Warner Cable, Chipotle, Claire's, Ann Taylor, Zara, UNO, CKE Restaurants (Carl's Jr., Hardee's, Green Burrito, and Red Burrito), Bed Bath & Beyond and Burlington Coat Factory.

"Maybe they're tied in or the fees... they're getting some type of kick-back or something from it," Novy said. "I don't know, but a lot of companies are doing it and it's not really fair to the consumer."

The New York AG wants to know that to. It asked all of the companies for any and all contracts between the payroll card wage payment system financial institution and the employer.

The Costco spokesperson who called Local 2 said Costco does not receive any money from the bank that issues the company's pay cards.

A Houston employment attorney told Local 2 the practice could violate the Federal Fair Labor Standards Act or Texas Payment of Wages Act.

If the employer requires that employees use these cards, it is possible that all the bank fees would drop the employee below minimum wage.

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