New York's top prosecutor is investigating some of the state's largest employers over their use of ATM-style cards to pay their hourly employees, the New York Times reported.

New York Attorney General Eric Schneiderman sent letters seeking information to about twenty employers, including McDonald's, Walgreen Co and Wal-Mart, the paper said, citing people briefed on the matter.

McDonald's, Walgreen and Wal-Mart were not immediately available for comment outside regular business hours.

The inquiry by Schneiderman comes as a growing number of companies are abandoning paper paychecks and direct deposit to offer prepaid cards, it said.

But consumer lawyers, employees, and state and federal regulators have said that use of the cards can generate a range of fees — 50 cents for a balance inquiry and $2.25 for an out-of-network ATM. Those fees can quickly devour the pay of part-time and low-wage workers, the paper said.

Some analysts say Western Union, the world's largest payment-transfer company, may be positioning itself to benefit from any changes to the traditional means of remitting money.

"Western Union is being smart about making sure that if there are changes, they are a part of it," D.A. Davidson's John Kraft said.

Prepaid cards are also increasingly becoming a means of paying employees. In September 2009, Wal-Mart started paying its employees who did not receive direct deposits with loaded prepaid cards instead of checks.

"The number one factor driving it is cost savings (for the employers), and saving money on manual processes and paper checks," Signal Hill's Tandon said.

Workers are also expected to benefit from payroll cards because of the security and convenience that comes with the cards, as they can be used at outlets where debit cards are accepted, as well as at ATMs to withdraw cash.