Banking by Fiat
Shaw: ‘Competition would have kept those fees down.’ (Photo by Scott Latham)
A D V E R T I S E M E N T
A D V E R T I S E M E N T
School district workers are losing choice on how to get their pay.
By BETTY BRINK
“I feel like they are telling us where to put our money, and we don’t have any choice anymore. That’s not right. It’s not their money, it’s ours.”
Mary, a Fort Worth school district cafeteria worker who asked that her last name not be used, is talking about a sea change in the way the district pays its employees, a method that’s being touted by the district’s chief financial officer as “a secure, convenient pay system that will be of great benefit” to workers, especially those in the low-paying service jobs. However, some of those workers, one district trustee, and a group that represents school employees think it’s a raw deal that benefits one bank and the school district while boring a hole in workers’ pockets and workers’ rights.
Beginning Feb. 1, the district will no longer issue paper checks that, until now, have routinely been delivered to schools or sent to employees by mail. Instead, the district will offer employees only two options: They can use direct deposit or something called a payroll debit card. The direct deposit can be done at any bank designated by the worker — assuming they have bank accounts at all, which many do not. The payroll debit card, however, will be issued only by Bank One. About 2,000 workers will be affected.
Larry Shaw, head of the United Educators Association, said the district does need a new payroll system, but that this is the wrong one, for reasons of ethics and fairness. “This has been a gravy train for Bank One and an unfair hit on the low-income employees,” Shaw said.
In effect, he said, the district is forcing many workers to open bank accounts whether they want them or not and — if they choose the payroll card — to pay outrageously high bank fees in order to get the money they’ve already earned. And, he said, the district’s decision to give the debit card contract to Bank One without giving other banks and credit unions the opportunity to bid for that business is unethical.
The debit card is a heretofore little-known payroll device that is growing in popularity in some places. It targets mostly low-income or part-time workers, allowing an employer to deposit payroll funds in a bank that then issues each employee a debit card linked to his or her funds. The workers can use the card for ATM withdrawals or purchases much like any other debit card, said Joe McCoy, the district’s chief financial officer. “It’s a good deal. Their money is safe, it is available at midnight on payday, and there are no checks to be stolen from their mailboxes.” The arrangement is similar to the Lone Star Card that the state now issues in lieu of food stamps, he said.
Sounds good, until you read the fine print, Unlike the Lone Star Card, which involves no fees paid by users, Bank One would charge debit card holders a series of fees that many in the district who have seen them, including school trustee Juan Rangel, describe as exorbitant.
For workers, a payroll card “is a very expensive way to collect wages,” wrote Gail Hillebrand of the watchdog group Consumers Union. Employers save a lot of money by eliminating paper checks, Hillebrand pointed out in a cautionary report on the payroll cards, but fees for workers can be substantial — running from $164 to $322 a year. She also warned that it is not clear whether pay card accounts are as well protected from theft as checking accounts are under federal law.
The Fort Worth district is giving Bank One the exclusive right to issue the payroll cards, McCoy said, because “that’s where the district’s money is.” A cardholder will get four free ATM withdrawals per month at Bank One locations; after that, each withdrawal will cost $1.50. Over-the-counter cash advances will cost $3 per transaction. Getting a second card is $5. Balance inquiry by phone: 75 cents per call. If the cardholder wants to close the account, it will cost him or her $10. And don’t dare lose that card or let someone steal it. Replacement, even if the employee proves the original was stolen, will cost $25.
“Those are simply unacceptable fees for low-income workers, or any worker, to pay to get their rightly earned money,” said Juan Rangel. “If we are going to force people to use such a system, then the district, not the worker, must pay the fees. The only way I will agree to this change is if the district absorbs those fees.” Otherwise, he said, the district is perceived as forcing employees who can least afford it to spend money in order to get paid. “No, no, no,” the trustee said. “We can’t have that.”
McCoy said trustees were told about the impending change, but that they did not have to approve it by a board vote. “That decision was mine to make,” he said.
Rangel said he does not recall ever hearing about the new payroll system, until Fort Worth Weekly began asking about it. He said he will raise the issue at the next board meeting and try to stop the change from going into effect.
Shaw, whose organization represents the largest group of school employees in Tarrant County, agreed with Rangel that the district should foot the bill for the fees. The fees mean that the greatest benefit of the plan will accrue not to the $15,000-a-year teacher’s aide nor an $18,000-a-year cafeteria worker, but to Bank One, he said.
“This [payroll card] should have been put out for bids,” Shaw said. “Competition would have kept those fees down.” Shaw thinks Bank One has gotten “a cushy ride in more ways than one.” Other banks were kept out of the loop on this, he said. “On behalf of our membership, we’re going to demand some answers,” he said.
Shaw was especially concerned that McCoy’s office had sent out memos to the district’s workforce with Bank One flyers enclosed, offering a “special package of free and discounted banking services to all employees” who sign up with Bank One for direct deposit. No other banks’ offers were included in the memo.
Mary, the cafeteria worker, said that for more than 18 years, on payday, “the money man [an armored car driver] brought our checks to the school, and that worked just fine.” But then, without explanation, she said, that stopped last year, and the district began to mail the checks out.
Now the system has changed again, and Mary, who now makes about $12 an hour, reluctantly opened a bank account for the first time in her 20 years with the district. She and her fellow workers — most of whom she said are newer employees making minimum wage — felt they had no choice but to use Bank One. “That’s the only bank they ever mentioned,” she said. “We thought we had to use it.”
Back in August, at the beginning of the school year, Mary said, food service employees from across the district were called to what they thought was an orientation meeting. But the only people there, she said, were from Bank One, giving their pitch about the benefits of banking with them. No other bank reps were there.
“We knew nothing about it,” said Bob Rogers, CEO of the Educational Employees Credit Union, where many district employees have historically done their banking. “Obviously, we would like to have had access.” The credit union, which has catered to educators since its creation 70 years ago by 10 Fort Worth teachers, has always been considered “a partner with the Fort Worth schools,” Rogers said. “We would like to be able to serve the district in any way possible [including] the opportunity to offer direct deposit to any individuals interested.”
Bank One, whose merger with financial giant JPMorgan Chase last year has made the new banking conglomerate the second largest in the nation, has handled the district’s payroll since 1997. That’s now a $33 million a month job, McCoy said. With 16,800 employees — more than a third of them part-time — the district is the second-largest employer in the county.
For whatever reason, Shaw pointed out, a large number of workers still don’t use banks. They may be immigrants who don’t yet understand or trust the system. Others may have bad histories with banks and can’t open an account. Some, like Mary, simply want to get their checks in hand and cash them at a friendly neighborhood store even if it costs a fee. “I have always used a grocery store in my neighborhood,” which charges her about $7 dollars a paycheck, she said. “But it’s OK, it’s my decision. No one is telling me what I have to do with my money.”
Shaw and Rangel believe that many of the employees who take the payroll card option will be those who, having no bank account, now use one of the many check-cashing services around town.
A worker making $18,000 a year (or about $346 a week before taxes) who went to one of the local payroll cashers such as PLS, which charges 1 percent, would have been paying around $179 a year to get her checks cashed. Say that same worker signs up for the payroll card and uses it very conservatively. She makes her four free withdrawals a month, plus six more for a total of 10. She will pay out $9 a month for a year’s total of $108. She makes one over-the-counter cash withdrawal a month at $3 per hit for a total of $36. And she needs to check on her balance at least once each pay period at 75 cents per call for a total of $19.50. The card will cost her $163.50 a year in fees — less than the fees at PLS, but with little wiggle room for such things as lost cards ($25) or more monthly purchases.
Still, McCoy said he believes the Bank One pay card fees are reasonable. Shaw and Rangel think they would have been much more reasonable if Bank One had faced competition in getting the contract.
The impetus for changing the system so quickly came in October, McCoy said, when the U.S. Post Office flubbed up in delivering hundreds of paychecks. The district had a near-riot on its hands as employees whose checks were seven days late began to demand their money. McCoy issued new checks, he said. But later, when checks to vendors didn’t get delivered on time, McCoy decided not to take any more chances with the post office, “which had always been reliable before.” Direct deposit and pay cards seemed to him to be the answer — and one that would save the district money. Issuing paper checks, he said, “is very labor intensive.”
Shaw said that wasn’t reason enough for the district to move so quickly. If school officials had waited until August 2005, when Bank One’s contract with the district expires, they could have negotiated a much better deal, he said. And when that contract renewal does roll around, he said, his group will insist on a “no fee” criteria for the pay roll cards.
As for the memo that went out with the promo flyer from Bank One, McCoy said that error is being corrected. “We are sending out a memo today, to all employees, telling them they can use direct deposit at any bank of their choice,” he said Monday.
That clarification comes too late, however. The earlier memo warned employees that they must sign up for direct deposit or a payroll card by Jan. 20 or they would not get their paychecks “on time” in February.
That was the warning, Mary said, that pushed her into opening an account with Bank One, “the only bank they ever told us about.”
Fort Worth Bank One president Danny Smith was out of town Tuesday and not available to comment. Schools superintendent Joe Ross did not return calls seeking comment.
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