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Today the Wall Street Journal breaks a story we’ve been hearing about for a little while now. Apparently Walmart will no longer be offering regular paper checks to its employees. Instead, Walmart will begin paying its workers either through a direct deposit program, or on a debit card. Walmart is touting the change as a way to save money (for themselves) and as a green initiative because of all the paper it will save. While both are undeniably true, it could turn out to be a pretty raw deal for employees.

Employees with checking accounts who opt to get their pay through direct deposit will likely not be affected at all, but employees without a checking account could have to deal with fees for checking their balance, withdrawing money, and more. While the fees may not seem like a lot of money, they can add up and make a difference to an employee making poverty level wages.

What’s more, it seems to us that Walmart is trying to create a ‘factory store’ like situation, where employees end up spending large portions of their income where they work, giving their hard earned money right back to the company.

Here is an excerpt from the article:

Though the debit cards save companies money by reducing payroll costs, consumer advocates have criticized some card programs, noting that workers are often charged fees to access their money or even check balances.

MasterCard, however, said First Data Corp., which will process the transactions, agreed with Wal-Mart to offer some of the lowest fees available among such cards, and noted that many workers already pay fees for cashing checks. It said employees’ first ATM transaction a pay period is free; subsequent ones cost $2 each.

Laura Kelly, senior vice president of global prepaid cards at MasterCard, said the arrangement benefits both companies and workers, who “won’t have to go to stores to pick up their paychecks anymore.”

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By this time we should all be aware of the controversies surrounding credit companies - in addition to increasingly complex and confusing options for credit applicants, credit card issuers have been raising interest rates and fees for many current borrowers, many of whom were in complete compliance with their card holders’ agreements when their rates were raised. This is a major reason behind the call for continuing credit card reform.

What many people might not be aware of is the struggle between credit companies and the retailers at which their cards are used. As Bloomberg explains, this could end in a giant Visa vs. Wal-Mart rumble:

Lawmakers are promising new rules to bring down the interchange fee, a charge on purchases sometimes topping 3 percent that’s split by the two banks serving the customer and merchant. Supporters of the legislation include the biggest retail chains, restaurants and small businesses, which say the fees erode profit and inflate prices...Interchange is the second-biggest cost after payroll, Target said, and merchants want to negotiate lower payments collectively without running afoul of antitrust law.

The issue has become such a hot topic, the Government Accountability Office has been ordered to study the effect interchange fees have on both consumers and merchants. The “interchange fee” is the fraction of every credit card transaction that the card’s issuer retains. When combined with additional smaller fees levied by a retailer’s own bank (to which the retailer first submits the transaction), interchange fees can cut into retailer revenue - especially important for those retailers with slim profit margins.

Interchange fees have risen over time - interesting, since technological advances would suggest the cost of such transactions should go down - and the result is a growing battle between retailers and card issuers. Wikipedia provides a surprisingly simple example of how the fees work:

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The Connecticut Post ran a story over the weekend that serves as yet another signal Wal-Mart is looking to extend its financial services department. The feature focuses on Wal-Mart seeking to expand its check cashing services into Connecticut, announcing in television advertisements that it will cash a paycheck for up to a $3 fee, and hopes to be providing the service within a year in Connecticut, after it gets licensed.

Wal-Mart has actually been in the check cashing business for quite a while now - in 2004 the retailer began allowing customers to cash their pre-printed payroll or government-issued check, including tax refund checks, at designated registers in Wal-Mart Stores and Neighborhood Markets in 44 states. In the others (Connecticut, Massachusetts, New York, New Jersey, Nevada, Rhode Island) Wal-Mart was applying for a license to do so. In 2007, Wal-Mart announced plans to open 1,000 in-store MoneyCenters aimed at serving people without traditional bank accounts, and also debuted a reloadable, prepaid Visa debit card that didn’t require a bank account or proof of U.S. citizenship.

Since then, Wal-Mart has received a check cashing license in Massachusetts, and apparently continues to try for one in Connecticut. As it is, CT allows retailers to cash checks without a license, but they cannot charge more than 50 cents per check. With a license, Wal-Mart could charge up to 2% of the amount cashed, although Wal-Mart has maintained that it will charge no more than $3 per check. It sounds like a modest amount per check, and indeed, it could be a substantial savings over check cashing outlets or banks where charges can reach $10-15 per transaction. Still, this is most likely nothing more than a way for Wal-Mart to attract more sales in its stores, while breaking further into a business retailers have generally shied away from.

Hank Shyne, executive director of the Financial Service Centers of America Inc., was well aware of Wal-Mart’s move and said it is something his group is paying attention to. He added regulations in the various states make it difficult for the retailer to come into the business. But it is a big and attractive market, he said. “There are a lot of people who live paycheck-to-paycheck and need the money immediately,” Shyne said. In New York in 2007, there were 32 million checks cashed worth $16 billion. “Nationwide it’s more like a $160 billion business.”

It wouldn’t be surprising if the ad push is ultimately aimed at getting more people using its MoneyCenters, and its reloadable debit card in particular.

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New York’s Governor called for a host of new fees and taxes yesterday, including an “iPod tax” that taxes the sale of downloaded music and other “digitally delivered entertainment services.”

The Governor’s new budget for 2009 includes 88 new fees plus a bunch of other new taxes on anything from soda, beer, wine and cigars to movie tickets, taxi rides, and massages. According to the NY Daily News, It would also extend sales taxes to cable and satellite TV services and remove the tax exemption for clothes costing less than $110. So no more grabbing a box of stogies and hitting the local cinaplex for me, I guess...well, assuming I lived in New York. Which I don’t.

That the “iPod tax” actually refers to Apple’s popular product by name would cause one to infer that Governor Paterson has it out for frequenters of the iStore. In actuality, however, MacWorld points out that the title is a little misleading.

It’s not a tax on iPods, but rather the levying of state and local sales taxes for “digitally delivered entertainment services.” The iTunes Store would seem to be a prime target there, but Amazon, Wal-mart, and other retailers would take a hit from the proposed tax as well.

We’ll see if Wal-Mart and the rest flex their mighty lobbying muscles on this. While at least 16 states plus DC already have taxes of this nature, California shot down a similar proposal earlier this year.

New York governor proposes digital download tax [MacWorld]

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Wal-Mart has a long history of aggressively pushing into Mexico’s banking sector, and trying to keep various forms of payment within its stores. For example, earlier this year Mexico’s Supreme Court criticized Wal-Mart’s practice of compensating its employees with “voucher” cards only redeemable for goods within Wal-Mart stores, comparing this program to the existence of “company stores” under early 20th Century Mexican dictator Porfirio Diaz. Additionally, Wal-Mart also offers its own brand of banking services in-store, a practice that so far is illegal in the U.S. While Bancomer customers’ ability to pay credit card bills at Wal-Mart cash registers might seem beneficial, it could significantly draw business away from other banks who do not have access to the retail giant. And the move is particularly suspicious because Bancomer already administers Wal-Mart’s own brand of credit card, according to a recent USA Today story. With its own credit card, Wal-Mart has not exactly given fair lending terms: the card carries a whopping 69.6% annual interest rate, high even by Mexican standards. And given the recent financial crisis, caused in part by irresponsible lending practices, there is serious reason to doubt whether Wal-Mart’s offering of financial services to Mexico’s low- and middle-income consumers will serve their needs, or only drive them further into debt.

Mexican Customers Now Able to Pay Bancomer Credit Card Bills at Wal-Mart [El Sol de Mexico, 11/11/08]

Starting this week, [Mexican bank] BBVA Bancomer’s 5 million customers will be able to make credit card payments in Wal-Mart stores across Mexico, as part of the retailer’s and bank’s common strategy.

Bank customers will be able to make the payments in 745 locations of Wal-Mart de Mexico, including in different store formats, without paying additional fees and during more extensive hours than Bancomer’s own branch locations. They will be able to make payments 365 days per year in Wal-Mart, Bodega Aurrerá, Sam’s, Superama and Suburbia nationwide, taking advantage of the comfort, security and flexible hours that these stores offer.

Bancomer’s Director of Credit Cards and Consumer Banking, Rodrigo Manrique, commented that “the objective is to offer our customers more ways, and broader hours, to make their payments conveniently. Through this agreement, Wal-Mart de Mexico will receive an increased flow of customers in its stores, and both institutions will boost customer loyalty by offering them a superior service”.

For his part, Raúl Argüelles, Senior Vice-President of Corporate Affairs and Human Resources for Wal-Mart de Mexico, indicated that this commercial alliance permanently adds value to what his company offers to clients.

At the moment of paying at cash registers, users of this service will obtain a receipt of the transaction that has taken place, which they should keep since it will function as proof of payment should any further clarification be necessary. For the customer’s benefit, Bancomer will consider the day this transaction takes place, in any Wal-Mart de Mexico location, as the date of payment.

See the original article in Spanish here

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According to the ABA Journal, Wal-Mart general counsel Tom Mars says he is considering initiatives to lower associate billing rates at the company’s outside law firms “to some point where they reflect value.”

Actually, that’s probably not a completely horrible idea. First-year and low-level law firm associates make, well...let’s just say one makes about as much in one year as 7-8 Wal-Mart “associates” do. Sure, they went to law school and work long hours, but does that qualify them to make up to $160,000 per year? Tom Mars says: “No...NOOOO, DAMMIT!!!! Now get off my lawn!!”

Earlier this year, Wal-Mart issued a memo to its law firms announcing a moratorium on across-the-board rate increases. So you may be wondering where Wal-Mart gets the brass balls to announce these “initiatives” and “moratoriums” and such? Probably because they employ half the private attorneys in the United States? I mean, seriously, without paying all the lawyer fees that they do, Wal-Mart could probably just start giving store product away. Really. Note to Tom Mars: If you stop breaking the law, you won’t have to worry about lawyer fees. Its a strategy, and I stand behind it.

After Freezing Fees, Wal-Mart GC Considers Cutting Associate Billing Rates [ABA Daily Journal]

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