CFPB Issues Guidance On Payroll Cards

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On September 12, the CFPB issued a bulletin stating that the Electronic Fund Transfer Act (EFTA) and Regulation E apply to payroll card accounts, which Regulation E defines as “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.”  This bulletin follows pressure from federal legislators on the CFPB to clarify the protections afforded to consumers receiving wages on payroll card accounts and to investigate the fees and practices associated with such accounts, and reports of at least one state-level investigation of payroll card practices.

The bulletin and press release emphasize that the following provisions apply to payroll card accounts:

  • Fee disclosures.  At account opening or before the first electronic fund transfer (EFT), a payroll card issuer must provide disclosures of any fees imposed by the financial institution for EFTs, limitations on liability, and other required information.  The bulletin notes that some state laws dictate that certain information be provided before an employee elects to receive wages via payroll card.
  • Account information.  A payroll card issuer must provide periodic statements as required by Regulation E generally or, alternatively, must make available to the consumer – (i) by telephone, the consumer’s account balance; (ii) electronically (such as through a website); or (iii) in writing (if requested) – a history of the consumer’s transactions and fees covering the preceding 60 days.
  • Unauthorized transfers With limited exceptions regarding the period within which an unauthorized transfer must be reported, Regulation E’s limited liability protections apply to payroll cards.
  • Error resolution.  Financial institutions must respond to a consumer’s report of errors regarding a payroll card account if the report is received within 60 days of the consumer either accessing an electronic account history or receiving a written account history on which the error appears, whichever is earlier, or within 120 days after the alleged error occurs.
  • Compulsory use.  An employer may not require that its employees receive their wages by electronic transfer to a payroll card account at a particular institution.  An employer may, however, offer employees the choice of receiving their wages on a payroll card or receiving it by some other means.  The bulletin notes that most states’ laws contain additional restrictions on the manner in which employers may make wages available to their employees and that the EFTA and Regulation E preempt state laws “relating to” EFTs, among other things, only to the extent of any inconsistency.  A state law is not considered inconsistent with the EFTA and Regulation E if the state law affords consumers greater protections.

Lastly, the bulletin notes the CFPB’s authority to examine supervised entities’ use of third-party service providers and to enforce the EFTA and Regulation E against both financial institutions and employers.