NEW YORK - Sharon Baker always relished getting paid. It was thepaydays themselves she could do without.
Every other Friday afternoon, Baker used to bolt from her full-time job as a court clerk in Memphis, Tenn., to pick up her checkfrom her part-time job at the Radisson hotel downtown, beeline for acredit union and stand in line through the rest of her lunch hour.
These days, Baker eats lunch instead. The solution, albeit onethat subtracts $5 a month from her wages, is the result of a move bythe hotel and other employers who have begun experimenting with a newapproach to paying workers.
In the past year or so, a small but steadily growing number ofcompanies have begun disbursing wages using so-called payroll cards,targeting the roughly 40 percent of all U.S. workers who still counton paper checks.
The cards are designed to cut costs for employers while increasingthe financial flexibility of workers without bank accounts. But theyhave prompted questions from consumer advocates, wary of user fees.
Most of the cards levy charges of some type, although they aresometimes waived. One card, significantly different because it allowsworkers to make purchases by borrowing against future earnings ratherthan replacing a paycheck, raises concerns that it will encourageworkers to spend beyond their means.
Despite such concerns, payroll cards - which workers can use towithdraw money from an ATM or to make purchases, much like a debitcard - have begun taking hold. Visa and MasterCard have entered thebusiness, giving the cards increased marketability. The Coca-Cola Co.endorsed the concept this week, announcing that together withMasterCard and a unit of Citigroup, it will begin marketing payrollcards to its customers in the restaurant and hospitality business.
Analysts say the cards could tap into a market of millions ofworkers, mostly in lower-paid service jobs, who have avoided banksand direct deposit.
"Payroll cards are an area of intense interest for a lot of cardissuers," said Aaron McPherson of Financial Insights, a Framingham,Mass.-based research firm. "It appeals to a lot of people who don'thave bank accounts ... who are living on cash."
Many of those workers now go to check-cashing services to accesstheir pay, incurring fees averaging between 2 percent to 3 percent ofthe face value. Banks charge varying fees for the cards, negotiateunique deals with employers, and some employers pay the fees whileothers pass them on to workers.
Baker, for example, pays a $5 a month for her Visa-branded card.But Memphis-based First Tennessee National Corp., which issued hercard and has so far signed up about 7,000 users and is working withabout 100 employers, says it plans to eliminate the fee in comingmonths. Many of the cards entitle users to a limited number of freeATM transactions, often one a week or one per pay period.
While card features and charges vary widely, most work the sameway. Workers are assigned cards with their name on the front and amagnetic stripe on the back. Each payday, instead of picking up theirchecks, their wages show up as fresh credit on the cards, availableto be withdrawn or spent.
The cards can be used to pay monthly bills by arranging automaticdebit of the account, purchasing money orders or other means such asonline banking. If a card is lost or stolen, a worker notifies theissuer who sends out a new card. The cash value is stored on acomputer, rather than on the card, itself, so a worker who loses acard would not lose pay.
Baker said some of her co-workers were skeptical of the new cards,but she liked the idea. "I won't have to come down (to work), go tothe bank, deposit it and stand in line. I hate lines," she said.
Baker says the monthly fee is inconsequential, because it seemscomparable to other charges levied by banks.
Workers can carry a balance on the card, but it does not earninterest. Employers save money because they don't have to pay thecosts of processing, printing and shipping checks, or replacing thosethat are lost or stolen.
Retailer Gamestop Inc. began using payroll cards after the Sept.11 terrorist attacks shut down air transport, preventing the companyfrom getting checks to workers at 1,200 stores in 49 states.
"We had to move heaven and earth to try to get paychecks toeveryone," said David Shuart, vice president of human resources forGrapevine, Texas-based Gamestop, which also owns the Software Etc.and Babbage's chains.
In a somewhat different approach, a Pennsylvania firm, E-DuctionInc., is marketing what it calls a payroll deduction card, which doesnot replace a paper check or direct deposit. Instead, the company'scard, which carries a MasterCard logo, allows workers to makepurchases from retailers and then have the amount deducted in equalinstallments from their next four paychecks.
"It's access to credit that, otherwise, they (workers) would haveto pay an exorbitant fee for," said Tom McCormick, chief legalofficer for E-Duction, which charges an annual fee of $29 to $36 forits card.
The cards, both those replacing paychecks and those deducting frompayroll, raise questions from consumers advocates. While they favoranything that frees workers from having to use check-cashingservices, they are wary of fees on payroll cards and the debt loadincurred by users of the payroll deduction card.
"Is this a fair way to pay people so you're not shifting the costof getting paid on to the recipient?" said Jean Ann Fox, director ofconsumer protection for the Consumer Federation of America.
But Robert Sims, a First Tennessee executive in charge of thepayroll card program, notes that the bank has signed up more than2,000 of its 7,000 payroll card users for checking accounts since theprogram began. As a result, he said, the bank has begun to rethinkits approach to a group of lower-paid consumers who have usuallyshied away from banks.
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