Unbanked Americans need Plastic

The number of “unbanked” Americans rose 1.3 million nationally last year, according to a survey released Wednesday by the Federal Deposit Insurance Corp.   Of the unbanked Americans in 2008, more than 31 percent said they closed bank accounts because of overdraft fees, service charges or high minimum balance rules.  Yet they are substituting other more costly, less regulated services like payday loans, check-cashing services and pawn shops for their financial needs. 

While few banks are reaching out to under-banked communities, employers can pick up the slack by moving employees to direct deposit using a Visa debit payroll card.  And employers can help control costs by negotiating group discounts for their unbanked employees. 

Payroll cards benefit both the employer and the employee as an added benefit.   Employers find that direct deposit on a payroll card is less costly than issuing paper checks, and reissuing lost or stolen paper checks.  Distributing pay through direct deposit is less disruptive and more efficient than handing out paper checks or mailing checks.  Getting payroll distributed to employees electronically should be considered as part of every companies disaster planning. 

For their part, employees without bank accounts should request a payroll card from their employer.  Payroll cards can costs as little as a $1.95/mo or less than $25 a year (lower than many credit card annual fees) since there are ways to use the cards that avoid all other usage fees.  For example, free cash back at the grocery check out verse using the ATM.  Transactions such as debit purchases (both signature and PIN debit) are also free.  The costs of carrying a payroll card is less than a traditional bank account and far less than paying to cash a check.  Visa debit payroll cards are more secure than carrying cash (stolen or lost cards can be replaced unlike cash and purchase protections are provided when using a card) and more convenient.  And payroll cards aid in managing expenses through statements and reports. 

For the FDIC's part, if they are serious about their goal to bring the “unbanked” into the financial mainstream, they need to address "pay without discount" rules.  Issuing paper checks is not only not green but is more costly to employees without bank accounts forced to find alternative ways to cash company checks. 

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