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Risks and Rewards of Payroll Cards
by kim
Hundreds of Illegal ATMs Found in Massachusetts
Gergana KolevaGergana Koleva RSS Feed
Dec 22nd 2010 at 2:00PM
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Filed under: Banking, Fraud, Identity Theft, Consumer Ally
illegal atms An unusual investigation of non-bank automated teller machines in Massachusetts has found more than 300 ATMs operating without a license, and another 101 legal ones doing business despite various violations among their owners.
Non-bank ATMs are typically located in convenience stores, service stations and sometimes in communities where there are few banks. Under Massachusetts law, they must be approved and registered with the state, and must disclose withdrawal fees, owner contact data and other information to consumers.
Renegade machines that don't follow the rules may expose consumers to ATM skimming. That's when thieves attach hard-to-detect reading devices that copy debit card numbers, and hidden cameras or overlay keyboards that record users' tapping in their PIN. From there, fraudsters can burn the data onto a blank card to access account holders' cash.
"A consumer sees an ATM standing in the middle of a shopping mall and they assume it's legitimate. Some of these machines are ghost ATMs, they're just a shell," said Robert Vamosi, a security, risk and fraud analyst at Javelin Strategy & Research, in an interview. "Ghost ATMs" are boxes designed to look like the real thing, but they don't contain internal hardware to encrypt, send and receive data from a financial institution.
Vamosi pointed out many fake ATMs mimic the computer circuitry of real ones, so they're not easily recognizable. Skimming attacks have also evolved from basic card-data theft to sophisticated attacks on the software inside ATMs and networks. "This is the means which criminals have started to employ to capture PIN numbers -- by tricking you into going to a dummy machine," Vamosi said.
According to the Massachusetts governor's office's Division of Banks, which conducted the investigation, the number of non-bank ATMs in the state tripled the last 10 years, to approximately 5,600. Observers say it may be indicative of a wider trend.
"The growth of non-bank ATM companies is happening across the country. The problem is that not every state requires the registration of non-bank ATMs," said David Cotney, a spokesman for the Division. He noted consumers must have a high level of trust and protection when using a non-branded ATM, and the only way to ensure that is to register and bring into compliance all unregistered machines.
The 300 illegal ATMs in Massachusetts are required to cease operations until they are properly authorized. Click this list for locations.
In addition, 101 authorized non-bank ATMs inspected in Massachusetts also stood in violation of various state rules. The most common included failure to provide a 24-hour, toll-free contact phone number as well as contact information of the owner and operator. Failing to post the Division's contact information for consumer inquiries and unresolved complaints also was common.
The Risks and Rewards of Payroll Cards
Martha C. WhiteMartha C. White RSS Feed
Dec 17th 2010 at 9:00AM
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Filed under: Banking, Extracurriculars, Career
a woman swipes a card into a machine - payroll cardsThe era of receiving a paper paycheck is rapidly becoming as distant as the days when we relied on landlines for all our communication needs. To make things easier on workers -- and save a bundle on administrative costs in the process -- companies increasingly have been relying on electronic payment methods. Many workers now are paid via direct deposit to a checking or savings account.
But for those who don't have, can't get or don't want a traditional deposit account, the option increasingly comes down to a single choice: a payroll card, which is a reloadable debit card onto which a worker's funds are loaded. According to the nonprofit organization Consumers Union, nearly $16 billion was loaded onto payroll cards in 2007, and it's very likely that the numbers have climbed since then.
"With the advent of technology surrounding gift cards and prepaid cellphones becoming so prevalent, individuals are more comfortable accepting payroll cards," says Bob Howe, former CEO of payroll card company Directo. These cards can be helpful in that they're safer than carrying around potentially hundreds of dollars in cash and may help users avoid as much as a 3% fee charged by a check-cashing storefront. But they're not perfect, and the legal gray area in which they exist has some consumer watchdogs worried.
Sean Panizzi, branch manager at Teamtemps Personnel Staffing in Valdosta, Ga., says payroll cards were a lifesaver at his business, which employs around 700 temporary staffers who work for clients in several Southeastern states. Paper checks got lost in the mail or were sent to the wrong addresses, and they sometimes needed to be canceled, reissued and overnighted -- at considerable expense -- when a client submitted the temp worker's hours incorrectly. About a year ago, Teamtemps started offering the Global Cash Card, issued by MasterCard, to workers who didn't opt for direct deposit. Panizzi says that workers loved the option, so much so that about 50% of them now opt for the cards.
Panizzi's company did a few things right when it started issuing payroll cards, according to the consumer advocates we consulted. First, Teamtemps scouted out a card that even those without access to a bank could use without paying hefty fees. This was a crucial step in picking a card provider, Panizzi says, since the company has many employees in rural areas who would need to rely on ATMs to access their cash. (One problem with both prepaid and reloadable debit cards is that there can be high fees for users who want to withdraw cash.) Teamtemps also got information about the card translated into Spanish so workers who didn't have English as a primary language wouldn't struggle to understand how the card worked.
Another card benefit? Howe says that they're much cheaper for employers to administer than the paper checks they replace. In addition, for those Americans who are part of what watchdog groups dub the "unbanked," they can be a less-expensive option. "We were focused on the workforce that didn't or couldn't get a bank account," Howe says of his days at Directo. "This lets get them out of the world of check-cashing fees."
While this is true, the cards can come with plenty of their own fees, a prospect that worries some people like Jean Ann Fox, director of financial services for Consumer Federation of America. While the initial purchase price of the card is often borne by the employer, workers may be subject to fees when they withdraw cash at an ATM, make a purchase in a store, call to check their balance, request a paper statement or need a card replaced if it's been lost or stolen.
Prior to the passage of the Overdraft Act this July, some cards would even let users overdraw and incur hefty fees, which is like extending a short-term loan -- at a payday loan prices. Given that these cards are specifically targeted to workers who are financially unsophisticated, this could add up to a whole lot of trouble.
A big part of the problem is the relative lack of regulation around prepaid and reloadable debit cards. "Our position is that they're legally nebulous," says Angie Wei, legislative director of the California Labor Federation. "There's no oversight or regulatory framework."
California has better laws than many states when it comes to payroll cards, but Wei says that the lack of a national framework to regulate these cards puts cardholders at risk of falling through the cracks. This legal gray area is troubling to many consumer advocates, who point out two main trouble spots with the cards.
First, there aren't many limits on the types of fees and the amounts of those fees that a card issuer can charge the user. A total of 11 states have laws on the books saying that a worker has to have the right to access their pay without paying a fee, so most payroll cards permit one free withdrawal per pay period. If the cardholder doesn't have a bank account, though, this isn't really practical; they'd be in the same unsafe situation -- carrying around piles of cash -- that you'd imagine they got the card to avoid. In reality, using the card can cost the worker his or her hard-earned money. Even Howe acknowledges, "Some of the programs out there even today are very expensive for the worker."
A potentially bigger problem has to do with FDIC insurance. Under FDIC rules, if you have a bank account with less than $250,000 in it and the bank fails, you get your money back. If an entire company's worth of payroll deposits are lumped into a single account, though, there's no legal guarantee that all the money would be returned to its rightful owners if the bank goes bankrupt.
"You and I take for granted that if your bank folds tomorrow, we're going to get our money back," says CFA's Fox. This also is a problem with general-purpose prepaid debit cards, which we've discussed before on WalletPop.
Gergana KolevaGergana Koleva RSS Feed
Dec 22nd 2010 at 2:00PM
Text SizeAAA
Share
Filed under: Banking, Fraud, Identity Theft, Consumer Ally
illegal atms An unusual investigation of non-bank automated teller machines in Massachusetts has found more than 300 ATMs operating without a license, and another 101 legal ones doing business despite various violations among their owners.
Non-bank ATMs are typically located in convenience stores, service stations and sometimes in communities where there are few banks. Under Massachusetts law, they must be approved and registered with the state, and must disclose withdrawal fees, owner contact data and other information to consumers.
Renegade machines that don't follow the rules may expose consumers to ATM skimming. That's when thieves attach hard-to-detect reading devices that copy debit card numbers, and hidden cameras or overlay keyboards that record users' tapping in their PIN. From there, fraudsters can burn the data onto a blank card to access account holders' cash.
"A consumer sees an ATM standing in the middle of a shopping mall and they assume it's legitimate. Some of these machines are ghost ATMs, they're just a shell," said Robert Vamosi, a security, risk and fraud analyst at Javelin Strategy & Research, in an interview. "Ghost ATMs" are boxes designed to look like the real thing, but they don't contain internal hardware to encrypt, send and receive data from a financial institution.
Vamosi pointed out many fake ATMs mimic the computer circuitry of real ones, so they're not easily recognizable. Skimming attacks have also evolved from basic card-data theft to sophisticated attacks on the software inside ATMs and networks. "This is the means which criminals have started to employ to capture PIN numbers -- by tricking you into going to a dummy machine," Vamosi said.
According to the Massachusetts governor's office's Division of Banks, which conducted the investigation, the number of non-bank ATMs in the state tripled the last 10 years, to approximately 5,600. Observers say it may be indicative of a wider trend.
"The growth of non-bank ATM companies is happening across the country. The problem is that not every state requires the registration of non-bank ATMs," said David Cotney, a spokesman for the Division. He noted consumers must have a high level of trust and protection when using a non-branded ATM, and the only way to ensure that is to register and bring into compliance all unregistered machines.
The 300 illegal ATMs in Massachusetts are required to cease operations until they are properly authorized. Click this list for locations.
In addition, 101 authorized non-bank ATMs inspected in Massachusetts also stood in violation of various state rules. The most common included failure to provide a 24-hour, toll-free contact phone number as well as contact information of the owner and operator. Failing to post the Division's contact information for consumer inquiries and unresolved complaints also was common.
The Risks and Rewards of Payroll Cards
Martha C. WhiteMartha C. White RSS Feed
Dec 17th 2010 at 9:00AM
Text SizeAAA
Print this page|EmailShare on FacebookShare on TwitterShare on DiggShare on Lifestream
Filed under: Banking, Extracurriculars, Career
a woman swipes a card into a machine - payroll cardsThe era of receiving a paper paycheck is rapidly becoming as distant as the days when we relied on landlines for all our communication needs. To make things easier on workers -- and save a bundle on administrative costs in the process -- companies increasingly have been relying on electronic payment methods. Many workers now are paid via direct deposit to a checking or savings account.
But for those who don't have, can't get or don't want a traditional deposit account, the option increasingly comes down to a single choice: a payroll card, which is a reloadable debit card onto which a worker's funds are loaded. According to the nonprofit organization Consumers Union, nearly $16 billion was loaded onto payroll cards in 2007, and it's very likely that the numbers have climbed since then.
"With the advent of technology surrounding gift cards and prepaid cellphones becoming so prevalent, individuals are more comfortable accepting payroll cards," says Bob Howe, former CEO of payroll card company Directo. These cards can be helpful in that they're safer than carrying around potentially hundreds of dollars in cash and may help users avoid as much as a 3% fee charged by a check-cashing storefront. But they're not perfect, and the legal gray area in which they exist has some consumer watchdogs worried.
Sean Panizzi, branch manager at Teamtemps Personnel Staffing in Valdosta, Ga., says payroll cards were a lifesaver at his business, which employs around 700 temporary staffers who work for clients in several Southeastern states. Paper checks got lost in the mail or were sent to the wrong addresses, and they sometimes needed to be canceled, reissued and overnighted -- at considerable expense -- when a client submitted the temp worker's hours incorrectly. About a year ago, Teamtemps started offering the Global Cash Card, issued by MasterCard, to workers who didn't opt for direct deposit. Panizzi says that workers loved the option, so much so that about 50% of them now opt for the cards.
Panizzi's company did a few things right when it started issuing payroll cards, according to the consumer advocates we consulted. First, Teamtemps scouted out a card that even those without access to a bank could use without paying hefty fees. This was a crucial step in picking a card provider, Panizzi says, since the company has many employees in rural areas who would need to rely on ATMs to access their cash. (One problem with both prepaid and reloadable debit cards is that there can be high fees for users who want to withdraw cash.) Teamtemps also got information about the card translated into Spanish so workers who didn't have English as a primary language wouldn't struggle to understand how the card worked.
Another card benefit? Howe says that they're much cheaper for employers to administer than the paper checks they replace. In addition, for those Americans who are part of what watchdog groups dub the "unbanked," they can be a less-expensive option. "We were focused on the workforce that didn't or couldn't get a bank account," Howe says of his days at Directo. "This lets get them out of the world of check-cashing fees."
While this is true, the cards can come with plenty of their own fees, a prospect that worries some people like Jean Ann Fox, director of financial services for Consumer Federation of America. While the initial purchase price of the card is often borne by the employer, workers may be subject to fees when they withdraw cash at an ATM, make a purchase in a store, call to check their balance, request a paper statement or need a card replaced if it's been lost or stolen.
Prior to the passage of the Overdraft Act this July, some cards would even let users overdraw and incur hefty fees, which is like extending a short-term loan -- at a payday loan prices. Given that these cards are specifically targeted to workers who are financially unsophisticated, this could add up to a whole lot of trouble.
A big part of the problem is the relative lack of regulation around prepaid and reloadable debit cards. "Our position is that they're legally nebulous," says Angie Wei, legislative director of the California Labor Federation. "There's no oversight or regulatory framework."
California has better laws than many states when it comes to payroll cards, but Wei says that the lack of a national framework to regulate these cards puts cardholders at risk of falling through the cracks. This legal gray area is troubling to many consumer advocates, who point out two main trouble spots with the cards.
First, there aren't many limits on the types of fees and the amounts of those fees that a card issuer can charge the user. A total of 11 states have laws on the books saying that a worker has to have the right to access their pay without paying a fee, so most payroll cards permit one free withdrawal per pay period. If the cardholder doesn't have a bank account, though, this isn't really practical; they'd be in the same unsafe situation -- carrying around piles of cash -- that you'd imagine they got the card to avoid. In reality, using the card can cost the worker his or her hard-earned money. Even Howe acknowledges, "Some of the programs out there even today are very expensive for the worker."
A potentially bigger problem has to do with FDIC insurance. Under FDIC rules, if you have a bank account with less than $250,000 in it and the bank fails, you get your money back. If an entire company's worth of payroll deposits are lumped into a single account, though, there's no legal guarantee that all the money would be returned to its rightful owners if the bank goes bankrupt.
"You and I take for granted that if your bank folds tomorrow, we're going to get our money back," says CFA's Fox. This also is a problem with general-purpose prepaid debit cards, which we've discussed before on WalletPop.