McDonald's Budget Backlash Hits Visa, Payroll Cards

An online backlash over low wages at McDonald's (MCD) has drawn in Visa (NYSE:V), the processor of the payroll cards the fast-food chain uses to pay its employees.

The widespread criticism comes at a time when payroll cards in general and McDonald's version in particular are drawing mounting scrutiny for the fees they charge workers to access their own wages.

News outlets this week widely ridiculed a "sample budget" website that McDonald's and Visa created for the restaurant chain's employees. The budget includes several unrealistic expense assumptions, including the claims that people could pay as little as $20 per month for health insurance and nothing for heat.

The website also underscores just how little McDonald's pays its minimum-wage workers — and blasted Visa by association. "McDonald's and Visa Show It's Easy to Get By on a Low Salary as Long as You Don't Eat," read a headline on Slate; ThinkProgress wrote that the site "offers a laughably inaccurate view of what it's like to budget on a minimum-wage job."

In an email, a McDonald's spokesman called the sample budgets "generic examples" that "are intended to help provide a general outline of what an individual budget may look like." Visa declined to comment.

The site also suggests that McDonald's workers choose to be paid by Visa-branded payroll card, rather than by paper check. McDonald's last year unveiled the PayChekPLUS! Elite Visa Payroll Card as one way for its 80,000 employees to receive their salaries. Comerica (CMS) issues the cards.

The new wave of negative attention comes at an inopportune time for McDonald's and Visa, as they and the payments industry face new scrutiny over payroll cards. Payments industry members argue that such cards can often serve as more convenient substitutes to cash for employees without traditional bank accounts, and can save them from high check-cashing fees. But consumer advocates have long criticized the fees attached to many such cards, and those concerns have started to resonate with government officials.

Earlier this month, New York State Attorney General Eric Schneiderman announced that he would probe McDonald's and several other companies over their use of the cards to pay their workers. Last week, sixteen Democratic senators asked Consumer Financial Protection Bureau director Richard Cordray to "take swift action to protect American workers" from abusive payroll-card practices.

"Payroll fees are hard to monitor because the cards are not marketed to the general public," Lauren Saunders, an attorney at the National Consumer Law Center, a Washington, D.C. nonprofit, says. "It's a hidden market, which is why it's especially important for the CFPB to make sure that the products are safe."

McDonald's has come under particular scrutiny for its payroll cards. Last month, a former employee filed a class-action lawsuit in Pennsylvania alleging that the company forced her to accept her wages via a fee-laden JPMorgan Chase (JPM) payroll card. Pennsylvania law requires companies to offer payment by cash or check.

"If you don't activate the card, there is no way for us to pay you," a manager told the worker, according to the suit.

The McDonald's franchise owner named in the suit, Albert & Carol Mueller Ltd., later announced that it would change its policy to allow workers to be paid by direct deposit.

While the fees McDonald's employees pay for using the cards aren't publicly available, a fee schedule of a similar Visa PayChekPLUS! card offered through Paymast'r Services, a Colorado payments company, shows charges of 75 cents to check the balance statement and $1.75 for withdrawals, along with a $5-per-month inactivity fee.

There is also a $25 overdraft fee, which Saunders, of the National Consumer Law Center, calls "a terrible abuse" on cards of this type.

The economics of some payroll cards appear to benefit employers much more than their employees. A promotional brochure from Visa says businesses could pay just 35 cents to make a direct deposit to a payroll card, compared with $2 for a check. The brochure also cites the example of an unnamed "Fortune 500 casual dining company" that increased its electronic pay rate to 75% from 29% by using the cards, reducing its payroll costs by 65%.

Two McDonald's employees unlikely to receive their pay through the cards are Chief Executive Don Thompson and former CEO Jim Skinner, who retired in May 2012. Last year, Skinner received a pay package worth $27.7 million, while Thompson took home $13.8 million.