The Risks and Rewards of Payroll Cards

The 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.