October 1, 2013
Authored by: Bryan Cave Leighton Paisner
While Employers Can Mandate Electronic Direct Deposit, Employers Are Prohibited From Requiring the Use of a Specific Payroll Card Selected by the Employer.
On September 12, 2013, the Consumer Financial Protection Bureau (“CFPB”) published Bulletin 2013-10 (“Bulletin”) establishing that any “financial institution or other person” is prohibited from requiring that an employee receive wages only on a payroll card issued a particular financial institution of the employer’s choosing, based on the application of federal law to payroll card accounts. In particular, the Bulletin affirms that the Electronic Fund Transfer Act (“EFTA”) and its implementing regulation Regulation E (“Reg E”), prohibit mandatory payment of wages through a payroll card issued by a particular financial institution. Although “Regulation E permits an employer to require direct deposit of wages by electronic means,” the employee must be “allowed to choose the institution that will receive the direct deposit.” The CFPB explicitly states, however, that employers may offer employees “the choice of receiving their wages on a payroll card or receiving it by some other means.” (emphasis added). According to the Bulletin, “payroll card accounts” refer to those “accounts that are established directly or indirectly through an employer, and to which transfers of the consumer’s salary, wages, or other employee compensation are made on a recurring basis.”
The CFPB’s Bulletin was issued following reports that New York State Attorney General Eric Schneiderman was investigating some of the nation’s largest employers in connection with their payroll card programs.
A number of U.S. Senators subsequently called upon the CFPB and the Department of Labor to investigate the fees and practices associated with payroll cards. A copy of the letter from the Senators may be found here. A copy of Director Cordray’s response, which was issued on the same date, and mirrors the issues highlighted in the Bulletin, may be found here.
- Disclosure of fees: Payroll card holders are entitled to receive disclosure of any fees that they may be incurred for electronic transfers of funds to or from the card. Such disclosures must be “clear and readily understandable, in writing, and in a form the consumer may keep.” These disclosures must be made at account opening or before the first transfer occurs. The bulletin notes that some state laws require certain info to be provided before an employee elects to receive wages via payroll card.
- Access to account history: Card issuers are required to either provide periodic statements or generally make cardholders’ account balances and 60-day account histories available. Account balance information must be made available by phone, whereas account history must be made available online and in writing, upon request. The account history must include information on any fees imposed for fund transfers.
- Limited liability for unauthorized use: Liability for unauthorized use of a payroll card is limited so long as the unauthorized use is reported within a designated period of time.
- Error resolution rights: Card issuers must respond to a report of an account error provided that such information is received within such designated period of time.
The Bulletin also makes note of the fact that while most state laws contain additional restrictions, the EFTA and Reg E preempt such laws “relating to” electronic fund transfers but only to the extent of any
inconsistency. A state law is not considered inconsistent if it offers greater protections than afforded by federal law. Thus, employers must generally comply with both federal and state law requirements
when offering employees the payment of wages through a payroll card program.
Finally, the Bulletin concludes that not only does the CFPB has supervisory and enforcement authority over financial institutions issuing payroll cards, but that the CFPB is also authorized to enforce the
EFTA and Reg E against any person, including employers. Thus, the Bulletin puts all employers offering payroll cards on notice that they are subject to the CFPB’s jurisdiction with respect to payroll card