Tuesday, July 9, 2013

A Thriving American Industry: Fleecing the Poor

What do Wal-mart, Walgreens and McDonald's have in common?

Eric T. Schneiderman, New York State's Attorney General is investigating them, among other companies in the Empire State, regarding their use of payroll cards - ATM-like cards that some of these businesses are issuing instead of regular paper paychecks. The problem? These cards, usually the form of payment to low-wage workers can incur fees (50 cents for balance inquiry or up to $2.25 to use in an out of network ATM).  If you work at McDonald's for instance, this can pretty much eat up your paycheck!

But this isn't all. According to a recent New York Times article, this can be even more vicious trap...

"...one provider, for example, charges $1.75 to make a withdrawal from most A.T.M.’s, $2.95 for a paper statement and $6 to replace a card. Some users even have to pay $7 inactivity fees for not using their cards...“It’s pretty bad there’s a fee for literally everything you do.”

"...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."

How prevalent (read: lucrative) is the practice? In 2012 $34 billion was loaded onto almost 5 million cards. By 2017 projections are that the number will reach $70 billion on 10.8 million cards. The issuer of these cards? Netspend, headquartered in....wait for it...Austin, Texas.

Like most strategies that target low-income people, this has been flying under the radar for sometime. At least as early as 10 years ago, Coca-Cola began marketing this 'benefit' to its customers across the country, ''Coca-Cola has built incredible relationships with its customers by being more than just a beverage provider,'' said Ken Plunk, innovation leader for the food service sales group of Coca-Cola North America. ''We have an obligation to help them solve their business problems, and a very serious problem is the cost of labor in the food service industry.''

So how many market driven ways can we find to make poor people poorer? We can't be innovative in energy, healthcare delivery, manufacturing or the elimination of food deserts, but when it comes to getting the poor to part with their money, we've discovered a new industry...'fleecing'. 

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