shades of a corporate plantation.....

[ProblemAgain]

From Payroll to Payday Loans, Wal-Mart Wants to Be in Your Wallet

By Dan Ritter | More Articles

August 04, 2013

“The results of the 2011 National Survey of Unbanked and Underbanked Households indicate that insured financial institutions have an important chance to grow their customer base by expanding opportunities that bring unbanked and underbanked individuals into mainstream banking,” said Chairman of the Federal Deposit Insurance Corporation Martin J. Gruenberg when he was still awaiting confirmation.

The survey is the most recent one conducted by the FDIC, meaning the data are slightly antiquated but still broadly relevant. Nearly 24 million households in the United States — one out of every five in the nation — were underbanked in 2011, according to the survey. This is up by 821,000 households since the last survey, in 2009.

While Gruenerg is correct — the huge number of unbanked and underbanked households in the U.S. does represent a huge opportunity for federally insured banking institutions — it also represents a huge opportunity for non-federally insured quasi-financial institutions. One out of four American households have used at least one alternative financial service, according to the 2011 survey, and 12 percent of households use one on a regular basis.

While not all alternative financial services are suspect, people with undeveloped credit scores are often subject to costly — or even predatory — lending and services practices. Non-bank lending in particular has historically been predatory. Most people are familiar with payday loans: short-term loans with extremely high interest rates that most experts urge people to avoid if possible.

However, with federal minimum wage at just $7.25 per hour and not indexed to inflation, more and more people are finding themselves financially distressed and in need of access to short-term loans to cover basic living expenses.

The minimum wage issue is certainly not new, but the economic conditions of the post-crisis era have revitalized debate. Minimum wage was thrust into the spotlight during President Barack Obama’s 2013 State of the Union address, in which he called for an increase in the federal minimum wage from $7.25 per hour to $9.00 per hour, and for the rate to be indexed to inflation.

Recently, Wal-Mart (NYSE:WMT) and McDonald’s (NYSE:MCD) — both major employers of minimum-wage workers — have taken flak over payroll and employment policies. McDonald’s made headlines when it published a budget-management document that grossly underestimated the cost of living while simultaneously suggesting that a minimum-wage employee work 70 hours a week to make ends meet. Wal-Mart is in the mix for two reasons: because of a fight over the minimum wage in Washington, D.C., and because of its involvement in a non-bank lending company.

New York Attorney General Eric Schneiderman recently called attention to the practice of several major employers like Wal-Mart and McDonald’s in using payroll cards.

Payroll cards are not a new phenomenon by any means. Research firm Aite Group says $34 billion was loaded onto 4.6 million active payroll cards in 2012. The group forecasts that the amount loaded onto payroll cards will climb to $68.9 billion by 2017, and that the number of active cards is expected to grow to 10.8 million.

At a glance, a payroll card functions like a debit card. Instead of being attached to a bank account, a person’s paycheck is credited to the card. Users can then withdraw cash at an ATM, spend directly from the card, or transfer the money to a bank account. But critics of the cards see a very fine line between this sort of financial mechanism and the idea of a “company store,” in which employees are paid with credit that can only be redeemed at the business where they work.

And, as if the payroll cards weren’t enough, Wal-Mart’s involvement in a non-bank lending company called Progress Financial has come to light thanks to Bloomberg’s Businessweek.

Progress Financial — or Progreso Financiero — is a non-bank financial company focused on small, short-term loans. Specifically, the loans are targeted at the nearly 23 million non-banked Hispanics in the U.S. who are unable to access traditional banking services because of bad or limited credit. Businessweek reports that the company reported 250,000 customers to date and expects that it will have as many as 1 million by the middle of 2014.

The loans issued by Progress Financial range between $500 and $3,500 and look a lot like payday loans, except with slightly lower interest rates of or below 36 percent. Like payroll at Wal-Mart, loans can be received on cards that can be used a lot like debit or credit cards. Loan payments can be made at Wal-Mart or other participation retailers.

At a glance, the service is a reasonable way for non-banked people to get access to the credit they may need for essential purchases. But the fact that the company is led by a former Wal-Mart executive, has a Wal-Mart director on its board, and is a venture capital firm with the Waltons (Wal-Mart’s founding family) as the firm’s largest shareholder has raised some eyebrows. Wal-Mart representatives have emphasized that there is no direct relationship between the lender and the retailer.

Wal-Mart tried to get into banking business in the early and mid-2000s but faced opposition from unions and and the established banking community. Progress Financial is a workaround that gives the retailer a means to become more financially involved with many of the same people who work for and shop at its stores.

“We had always hoped there would be some relationship with retail,” James Gutierrez, who founded Progress Financial in 2005 and was its CEO until last year, told Businessweek. “Wal-Mart is the low-price leader, and that appeals to a certain demographic. There’s a lot of overlap.”

[exedir]

And the point is...well, that there is money to made with money, I suppose.  What we have here is a market opportunity due to changes in the markets, mostly the financial markets.  Banks are not what banks use to be which has to do with a change in the rules, cost of money; getting it, keeping it and getting rid of it and risk.  As to why and what those with the lower and lowest incomes do with their money is also based on perceived opportunity, access, habits and customs, inclusive of cultural and social norms.  

The idea of cash in the bank was once a grail of every wage earner, or at least most.  Not necessarily an ideal before the banking reforms and the FDIC of the thirties, but for most of our lifetimes, a bank was the safest place to put your money, in that it was insured and accessible by check.  Now, things have changed.  For one banks don't need or necessarily want our money, and the why is that it is easier, cheaper and quicker to borrow from the government at extremely low and favorable terms from the the Fed.  Another is that retail banking is costly in that checking accounts and physical buildings don't generate the returns that they once were able to, as ATM's and online banking has become possible and popular.   And another is those with money make money for banks, not the poor and near subsistence wage earners  those are now the customers of the check cashiers and payday loan shops targets.  Another is that cash always has value, is always accessible and can be hidden from, well, from a lot of others who might want to get it, including government.

If payroll cards are fair in that there are no hidden costs to the holder then it might be a fair exchange to all concerned.  But if, as in ATM cards, there are fees attached then the deal is unfavorable to the employee.  

As to minimum wage, yes, rising it does stimulate but in the end be a zero-sum game as inflation will eat all of the gains, impact the status of volume of employment and cause any employer to examine and alter the use of labor to reduce costs.

[ProblemAgain]

do i need to point out that to pay employees with the payroll cards with no other option is illegal? there was just a mcdonalds taken to court over this. the payroll cards have fees associated with EVERY transaction including just checking the balance, a withdrawal or purchase etc. thus not only do you PAY them a minimum wage but you take even more of their income away from them by doing so. and yes walmart then manages to pay a subliving wage and reimburse themselves by the interest on the payday loans. that is very little different than the old days of the plantations and mines when the 'employees' were paid in scrip only redeemable at the company store.

 surely you could connect the dots....

[exedir]

I can connect to dots that banking, financing and personal financing has changed for most Americans.

Once, some companies cared enough to provide entire communities for their workers as both an incentive, and, of course, in its own corporate self-interests to exploit, while providing much as in vassalage of the Middle Ages was a part of the scheme to protect and exploit on the lord's behalf his privileges, wealth, land and peasants.  

The modern variation of the company towns exist in China, the People's Republic, that is, whether it is provided by the state or private companies.   And to say that was all bad, is not a complete or true statement, in that, the welfare of the company's interests are not necessarily bad for those employees when included in the bargain is housing, education and medical care.  Models of these communities are also a part of history, and so too are the failures.  Kohler, Wisconsin, was a company town, progressive and planned and then subject to the longest strike in American history.  

Now, Kohler is a mecca for golf tourists while still making toilets, tubs and sinks, no longer a company town as in, owned by Kohler Corporation.