The Consumer Financial Protection Bureau has issued a bulletin warning employers that they cannot require employees to receive their wages on payroll cards. The bulletin appears to respond to the explosive growth in the use of such cards by employers in recent years as well as media coverage of the fees assessed for the use of some payroll cards. It also demonstrates the need for employers to exercise caution when designing or updating payroll policies that include the use of payroll cards.
Payroll cards are considered consumer accounts subject to Regulation E, which implements the Electronic Fund Transfer Act (EFTA). Regulation E contains provisions that apply to electronic fund transfers to and from consumer accounts generally and provisions that apply to payroll cards specifically. The general provisions include a prohibition on requiring a consumer to establish an account for the receipt of electronic fund transfers with a particular institution as a condition of employment.
The CFPB has emphasized that this provision prohibits employers from mandating that employees receive wages only on a payroll card chosen by the employer. While this provision permits employers to require employees to receive their wages by electronic means, they can only do so if the employee can choose the institution where the funds will be deposited. Alternatively, an employer can offer employees a choice of receiving their wages on a payroll card chosen by the employer or by some other means, such as by cash or check.
Subject to limited exceptions, the CFPB has authority to enforce the EFTA and Regulation E against anyone who violates them, including employers and the financial institutions that issue payroll cards. In the bulletin, the CFPB states that it intends to use its enforcement authority as well as its supervisory authority to address existing violations, to require remediation to employees, and to prevent any future violations. EFTA violations are also subject to civil liability provisions that permit the recovery of actual damages, statutory damages of up to $1,000 in an individual action and up to the lesser of $500,000 or 1 percent of the net worth of the defendant in a class action, plus costs and reasonable attorney fees.
The bulletin includes a discussion of some of the Regulation E protections specifically applicable to payroll cards, including:
Account opening disclosures
Periodic statements or other permissible methods of providing account history access
Limited liability for unauthorized transfers
Error resolution rights
In addition, the CFPB cautions that state law may contain additional restrictions on how employers can make wages available to employees (such as by mandating particular alternatives to payroll cards, or, although not noted by the CFPB, by requiring affirmative consent) and that such laws are not preempted if they are not inconsistent with Regulation E and afford greater protection to employees. (Some of these state law issues are discussed in our legal alert about the investigation recently launched by the New York Attorney General into companies that use payroll cards to pay hourly employees.)
In light of this bulletin, employers should contact counsel to ensure that their payroll card program complies with applicable state and federal laws. Payroll card issuers and distributors also need to be informed of legal issues facing their potential employer clients.