Payroll Cards Are Under Scrutiny by New York’s Attorney General

New York’s top prosecutor is investigating some of the state’s largest employers over their use of A.T.M.-style cards to pay their hourly employees.

The New York attorney general, Eric T. Schneiderman, has sent letters seeking information to about 20 employers, including McDonald’s, Walgreen and Wal-Mart, say people briefed on the matter.

he inquiry by Mr. Schneiderman comes as a growing number of companies are abandoning paper paychecks and direct deposit to offer prepaid cards. But consumer lawyers, employees, and state and federal regulators have said that in the vast majority of cases, use of the cards can generate a range of fees â€" 50 cents for a balance inquiry and $2.25 for an out-of-network A.T.M. Those fees can quickly devour the pay of part-time and low-wage workers.

And many employees say that they have no alternative. Even at companies where there is a choice, it is often elusive. Worried about imperiling their jobs, some employees say they are terrified of requesting another option, according to interviews with consumer advocates. Other employees say that they are automatically enrolled in the payroll-card programs and forced to navigate a bureaucratic maze if they want to opt out.

The surge in payroll cards and the problems associated with them were the subject of an article in The New York Times on Monday.

One of the employers contacted by the attorney general’s office, Walgreen, said that the company provided a payroll card as one option among many. The Walgreen’s spokesman, James W. Graham, added that the company “created a payroll card program for our employees with the specific intention of providing terms as favorable to our employees as possible, if they choose to be paid that way.”

McDonald’s declined to comment on the investigation. Wal-Mart did not immediately respond to requests for comment, but said in an earlier statement that the company allowed employees to choose whether to receive wages through direct deposit or a prepaid card.

Some employers and card issuers, like Citigroup, JPMorgan Chase and NetSpend, have said that the payroll cards are a useful tool for low-wage workers who do not have bank accounts. They also say that the fees on the cards are usually lower than those associated with check-cashing services â€" often the only other option for people who do not have bank accounts. The card providers and employers also note that there are free ways for employees to gain access to their pay.

Mr. Schneiderman’s office is examining whether the companies have violated state labor laws, say the people briefed on the matter who were not authorized to discuss the investigation publicly. Under New York law, employees must give their explicit consent before co! mpanies c! an credit funds to a payroll card.

His office is also investigating whether the employers are forcing workers to use payroll cards as a condition of their employment, these people said. State law also requires that employees have an option for getting their wages without incurring any fees.

“We are concerned about excessive or insufficiently disclosed fees which may unduly reduce employees’ take home pay,” Mr. Schneiderman’s office told employers, according to letters reviewed by The Times.

In the first stage of the inquiry, the attorney general is collecting more information about the use of payroll cards. His office is ordering employers to turn over documents that prove employees have given consent before being enrolled in the cards.

The prosecutor is also examining fee schedules to determine how the fees are accrued. The companies are required to also provide “a summary report of all fees paid by employees” that add up “as a result of payroll cards which they have ben issued,” the letters said.

The Times article highlighted the case of Natalie Gunshannon, 27, who made $7.44 an hour working at a McDonald’s franchise in Dallas, Pa. Saying she was forced to use a payroll card issued by JPMorgan, Ms. Gunshannon quit her job and sued the franchise owners.

On Monday, the owners of the McDonald’s franchise, Albert and Carol Mueller, announced that they were changing their policy and would offer direct deposit and paper paychecks to their employees. Ms. Gunshannon’s lawsuit, which seeks punitive damages, is still going forward, her lawyer said.