Natalie Gunshannon, a McDonald's worker from Pennsylvania, has just won the right to... draw a paycheck. Work-for-pay is a fairly straightforward system that the Western World has been using for the past six or seven centuries, give or take.
Ms. Gunshannon was an hourly employee at a McDonald's franchise in Shavertown, Pennsylvania. Her degree is in massage therapy, but jobs in that field are scarce. A single mother, she took whatever work was available, which brought her to McDonalds, where she worked the line for $7.44 an hour, 30 to 70 hours per week.
After her first pay period, she was given not a paycheck, but a "debit" card loaded with her wages. This card, backed by JPMorgan Chase & Co. (NYSE:JPM), could be used anywhere Visa was accepted - including ATMs. It all seemed very convenient.
A "Fine" ServiceThe problem was the JPMorgan debit card itself. It's a fine card... There are "fines" every time it's used:
- ATM withdrawals: $1.50 each
- Over the counter cash withdrawals: $5.00
- Balance inquiries: $1.00 per inquiry
- Online bill payment: $0.75 per bill
- Lost or stolen card: $15.00 replacement fee
- Inactivity fee (not using the card enough): $10.00 per 30-day period
At $7.44 per hour, these fees could easily send a person like Natalie Gunshannon right under the water. Losing her card would cost her better than two hours' worth of work. She has a checking account, and access to a debit card issued by a federally-backed financial institution.
Why would she want to be paid under this usurious system? She had no choice.
Ms. Gunshannon asked her manager if she could be paid with a check, as is the custom in these parts. Pennsylvania law says a worker can be paid in cash or check upon request.
She was told that checks weren't available, and that there was no way to transmit her wages other than this JPMorgan debit card...
McDonald's managers and assistant managers can be paid by direct deposit, but hourly employees can't at this franchise.
Cost-Cutting Run Amok
This McDonald's franchise wanted to cut down on the overhead, the cost needed to actually have a payroll company cut a check and send it.
Not willing to roll over for McDonald's or JPMorgan Chase, Ms. Gunshannon took her case to court. Since doing so, employees at other local McDonald's are coming forward, which may lead to the case being a certified class action.
McDonald's Corporation(NYSE:MCD) itself is not being sued, rather the franchisee. Under the "It wasn't me!" paradigm used in the fast food business, the specific franchise is named in the suit. McDonald's line is that the individual franchisee is responsible for its own payroll methods and practices.
The franchisee has already backed down, although the suit hasn't been tried or settled yet. As of this week, employees of the local franchises will have the choice of paper check, direct deposit to account, or payroll debit card.
But it's a fairly safe bet that practices like this persist elsewhere, away from the media glare. CNN reports that fast food employees often have to contend with abusive practices like union-busting and wage theft, where overtime is illegally and unethically paid at the straight-time rate. These practices are being investigated, but they continue in the meantime.
This isn't the only way companies like JPMorgan are colluding to make a buck off those who can least afford it.
It's Expensive to Be Poor
We've reported that companies like JPMorgan Chase have a vested interest in keeping Americans on public assistance and under-banked.
The Electronic Benefits Transfer cards that many receive instead of paper checks are operated by large banks like JPMorgan. The bank collects a small fee every time the customer uses the EBT card, which functions much like a debit card. The fees don't seem like much at first, or to those who are in trouble, but they add up.
Multiply this by a few tens of millions for those who are on at least some form of public assistance, and you can see that the poverty game makes banks like JPMorgan a lot of money.
According to the FDIC, nearly 29% of American households are unbanked or under-banked. The unbanked have no checking or savings accounts open in federally-backed banks, while the under-banked may have at least a checking account, but limited or no access to credit or capital.
These people use check-cashing outlets, payday lenders, rent-to-own services, pawn shops, and "refund anticipation loans" to process financial transactions. These businesses charge a relatively steep premium for any of their services.
A 30-day, $200 loan may cost the borrower $60 at the end of the term, an annualized rate far north of 300%. When a check is cashed, the check casher collects a 1% - 10% fee. If an unbanked individual were to use rent-to-own services for, say, a refrigerator, the cost at the end of the term would invariably be more than double the retail price.
No Easy Solution
To be fair, these services are taking a pretty big risk by lending to this demographic. There is a better than average chance that a payday lending customer will default or fall behind. Some consumer advocacy groups have stepped in to influence legislation which would reduce or mitigate these high rates.
But cities like Washington, D.C. that have attempted to re-regulate or crack down on payday lending and other alternative financial services have seen these outlets disappear in droves. A community which may have relied on the services of, say, ACE Check Cashing for cashing paychecks or cash advances may be completely cut off from any financial services now.
There's no easy fix to this problem. Wages have to rise, financial literacy has to take root, regulations must be carefully considered. None of this is likely to happen in the near future, not when there's just so much money to be made from poverty.
What do you think of #predatorylending practices, or payroll #debitcards? Are they a valuable service to an underserved population, or just another way to get over on the vulnerable. Sound off on Twitter, or drop us a line on Facebook.